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?
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.
