Question

Tungsten Company, Inc., sells heavy construction equipment. There are 12,000 shares of capital stock outstanding. The annual fiscal period ends on December 31. The following condensed trial balance was taken from the general ledger on December 31, Current Year: Account Titles Debit Credit Cash $ 35,200 Accounts receivable (net) 16,100 Inventory, ending 52,500 Operational assets 41,000 Accumulated depreciation $ 17,300 Liabilities 24,100 Capital stock 73,600 Retained earnings, January 1, Current Year 16,880 Sales revenue 148,500 Sales returns and allowances 6,400 Cost of goods sold 78,900 Selling expense 14,400 Administrative expense 16,200 Bad debt expense 3,400 Sales discounts 8,100 Income tax expense 8,180 Totals $ 280,380 $ 280,380 2. The beginning balance in Accounts Receivable (net) was $16,200. Compute the receivables turnover ratio.

Answer 1

Answer:

8.30 times

Explanation:

The computation of the account receivable turnover ratio is shown below;

Account receivable turnover ratio = Net credit sales ÷ Average accounts receivable  

where,  

Net credit sales

= Sales revenue - sales return and allowances - Sales discount

= $148,500 - $6,400 - $8,100

=  $134,000

And, the Average accounts receivable would be

= (Accounts receivable, beginning of year + Accounts receivable, end of year) ÷ 2

= ($16,200 + $16,100) ÷ 2

= $16,150

So, the accounts receivable turnover ratio would be

= $134,000 ÷ $16,150

= 8.30 times

Answer 2

The Receivables turnover ratio is 8.30 times. It is a measure of performance, which measures how effectively a company uses its assets.

What is Receivables turnover ratio?

The Receivable Turnover Ratio or Turnover Ratio is an accounting measure used, to measure how successful a company is in extending credit and collecting debt.

The money that the company's customers owe for goods or services they have received but have not yet paid.

For example, when customers purchase products on credit, the amount that can be added to the receivable account is called Accounts Receivable.

$\rm\,Receivables\, Turnover\, Ratio = \dfrac{ Net \,Sales}{Average \,Accounts \,Receivables}$

Calculation of net sales:

$\rm\,Net\,Sales = Sales\,-Sales\,return\,and \;Allowances - Sales \;Discounts\\\\\rm\,Net\,Sales = \ 1,48,500 - \ 6,400 - \ 8,100\\\\\rm\,Net\,Sales = \ 134,000$

Calculating further the amount of Average Accounts Receivables:

$\rm\,Average\;Accounts \;Receivables \\= \rm\, \dfrac{ \rm\, Beginning\;Accounts\;Receivables +Ending \, Accounts \;Receivable }{2}$

$\rm\,Average Accounts Receivables =\dfrac{( \ 16,100 + \ 16,200)}{2}\\\\\rm\,Average Accounts Receivables = \ 16,150$

The Receivables Turnover Ratio is equal to:

$\rm\,Receivables\, Turnover\, Ratio = \dfrac{ Net \,Sales}{Average \,Accounts \,Receivables}\\\\\\rm\,Receivables\, Turnover\, Ratio = \dfrac{\ 134,000 }{\ 16,150}\\\\\\rm\,Receivables\, Turnover\, Ratio = 8.30 Times$

Hence, the Receivables Turnover Ratio is equal to 8.30 times.

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