CPA Accountant Review Questions

Category - Accounting

Larry’s accounts show the following for the year:

Net Sales on Account: $200,000
COGS: $150,000
Accounts Receivable at the beginning of the year: $22,500
Accounts Receivable at year end: $17,500
Inventory at the beginning of the year: $45,000
Inventory at the end of the year: $55,000

What is the accounts receivable turnover ratio for the year?
  1. 10
  2. 4
  3. 2.5
  4. 5
  5. There is not enough information to compute the turnover ratio.
Explanation
Answer: A - The accounts receivable turnover ratio for the year is 10.

Net Sales: $200,000
Average Accounts Receivable = (22,500 + 17,500) / 2 = $20,000
Net Sales / Average Accounts Receivable = (200,000 / 20,000) = $10

Key Takeaway: Accounts Receivable Turnover = (Credit Sales / Average Receivable Balance). This number is used to determine how well accounts receivable accounts are being managed.
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