Question

A company shows the following profile:

current year credit sales is $300,000
credit sales returns and allowances is $20,000
sales discount on credit sales is $10,000
accounts receivable is $60,000
allowance for doubtful accounts is $10,000
The prior year accounts receivable is $70,000 and allowance for doubtful accounts is $20,000.
What is the current year accounts receivable turnover ratio?

Answer 1

To calculate the accounts receivable turnover ratio, we need to use the formula:

Accounts Receivable Turnover Ratio = Net Credit Sales / Average Accounts Receivable

First, we need to calculate the net credit sales for the current year:

Net Credit Sales = Credit Sales - Sales Returns and Allowances - Sales Discounts

Net Credit Sales = $300,000 - $20,000 - $10,000

Net Credit Sales = $270,000

Next, we need to calculate the average accounts receivable:

Average Accounts Receivable = (Beginning Accounts Receivable + Ending Accounts Receivable) / 2

Average Accounts Receivable = ($70,000 + $60,000) / 2

Average Accounts Receivable = $65,000

Now we can calculate the accounts receivable turnover ratio:

Accounts Receivable Turnover Ratio = Net Credit Sales / Average Accounts Receivable

Accounts Receivable Turnover Ratio = $270,000 / $65,000

Accounts Receivable Turnover Ratio = 4.15

Therefore, the current year accounts receivable turnover ratio is approximately 4.15.