Question

Somerset Corporation just completed its fiscal year ended January 31, 2021. All sales were on account and totaled 650,000 for the year. The accounts receivable balance on February 1, 2020 was 60,000 and the balance was 55,000 on January 31, 2021. What is the accounts receivable turnover ratio? Round and enter to one decimal place only.

Answer 1

The accounts receivable turnover ratio for the year ended January 31, 2021, for Somerset Corporation is 11.3 times.

What is the accounts receivable turnover ratio?

The accounts receivable turnover ratio is a financial measurement of the effectiveness of a company to extend credits and collect debts.

The ratio, which shows the number of times per period that Somerset Corporation can collect its credit sales, can be computed as net credit sales divided by average accounts receivable.

Data and Calculations:

Sales on account = $650,000

Accounts receivable balances:

February 1, 2020 = $60,000

January 31, 2021 = $55,000

Average receivable = $57,500 ($60,000 + $55,000)/2

Accounts receivable turnover ratio = Net credit sales/Average receivables

= 11.3 x ($650,000/$57,500)

Thus, the accounts receivable turnover ratio for the year ended January 31, 2021, for Somerset Corporation is 11.3 times.

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