Based on the following data for the current year, what is the accounts receivable turnover?

Question

Net sales on account during year $1,000,000 Cost of merchandise sold during year 600,000 Accounts receivable, beginning of year 45,000 Accounts receivable, end of year 35,000 Inventory, beginning of year 90,000 Inventory, end of year 110,000

a. 25.0
b. 28.6
c. 22.2
d. 10.0

Answer 1

Accounts receivable turnover calculates how many times a Company completely collects or 'turns over' its receivable balance in a year. The formula is as follows:

Sales / Average AR balance = AR Turnover Ratio

So here's the calculation in your question:

Sales = $1,000,000

Average A/R = ($45,000 + $35,000) / 2 = $40,000

A/R Turnover = $1,000,000 / $40,000 = 25

(The cost and inventory data is good information but not needed to calculate the A/R Turnover Ratio.)

So the answer is (a) 25.

Answer 2

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