Question

Assume the following for a company whose sales are all on account: The total asset turnover is 1.8. The average total assets is $600,000. The accounts receivable turnover is 9.00. The average accounts receivable balance is closest to:

Answer 1

The average accounts receivable balance is closest to $120,000.

What is the average accounts receivable balance?

The average accounts receivable balance is the addition of beginning and ending accounts receivable divided by two.

For instance, if the average accounts receivable balance is $120,000, then the total accounts receivable is $240,000 ($120,000 x 2).

Data and Calculations:

Assets turnover = 1.8

= (Net sales/Average Total Assets)

Average total assets = $600,000

Accounts receivable turnover = 9.00

= (Net Sales/Average Accounts Receivable)

Net sales = $1,080,000 ($600,000 x 1.8)

Average Accounts Receivable = $120,000 ($1,080,000/9)

Thus, the average accounts receivable balance is closest to $120,000.

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