Question

Compute the receivables turnover ratio using the following information:
Net credit sales is $200,000 for year 2.
Total assets at the end of years 1 and 2 were $800,000 and $1,200,000, respectively.
Accounts receivable at the end of years 1 and 2 were $40,000 and $60,000, respectively.

Answer 1

Answer:

Receivables Turnover Ratio is 4

Explanation:

Computation of Average Receivables

Opening Receivables           $ 40,000

Ending receivables               $ 60,000

                                               $ 100,000

Average receivables            $   50,000

Net Credit Sales                    $ 200,000

The Receivables Turnover ratio is calculated by dividing the Net Credit Sales by the Average Receivables.

Receivables Turnover Ratio = Net Credit Sales / Average Receivables

$ 200,000/ $ 50,000   = 4