Consider the following information:
| Year 2 | Year 1 | |
|---|---|---|
| Accounts receivable | $88,000 | $80,000 |
| Merchandise inventory | 66,000 | 80,000 |
| Net sales | 408,000 | 380,000 |
| Cost of goods sold | 248,000 | 228,000 |
What is the Year 2 receivables turnover ratio for Year 2? (Round your answer to 2 decimal places.)
Receivables turnover ratio = _______
Homework Answers
The formula for Accounts Receivable Turnover ratio = Net Credit Sales / Average Accounts Receivable
In the question, given,
Net Sales for year 2 = 408000 (Since any other data with regards to cash sale is not given, we are assuming the entire sales to be credit sales given on a net basis)
Average accounts receivable is calculated by Adding the value of accounts receivable at the beginning of the desired period to the value at the end of the period and divide the sum by two. The result is the denominator in the formula. It is calculated below:
= 88000+80000 / 2
= 84000
Substituting the data in the formula
The formula for Accounts Receivable Turnover ratio = Net Credit Sales / Average Accounts Receivable
= 408000 / 84000
= 4.86 times
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