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
Divided by Average Accounts Receivable ($22,500 + $17,500)/2 = $20,000
Net Sales divided by average a/r (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.
