Accounts Receivable and Inventory Ratios Ritter Company, whose current assets at December 31 are shown below,...
Accounts Receivable and Inventory Ratios
Ritter Company, whose current assets at December 31 are shown below, had net sales for the year of $850,000 and cost of goods sold of $550,000. At the beginning of the year, Ritter’s accounts receivable (net) were $160,000 and its inventory was $175,000.
| Cash | $32,000 |
| Short-term investments | 49,300 |
| Accounts receivable (net) | 170,000 |
| Inventory | 200,000 |
| Prepaid expenses | 11,600 |
| Current assets | $462,900 |
Instructions:
- Round turnover ratios to two decimal places.
- Use rounded turnover ratios to compute respective days' ratios.
- Round days' ratios to the nearest whole number (day).
a. What is the company’s accounts receivable turnover for the
year?
b. What is the company’s average collection period for the
year?
c. What is the company’s inventory turnover for the year?
d. What is the company’s days’ sales in inventory for the year?
Homework Answers
A) Accounts Receivable Turnover = Sales/Average accounts receivables
= 850,000/[(160,000+170,000)/2]
= 5.15 times
.
B) Average collection period = 365/Accounts Receivable Turnover
= 365/5.15
= 71 days
.
C) Inventory Turnover = Cost of Goods Sold/Average inventory
= 550,000/[(175,000+200,000)/2]
= 2.93 times
.
D) Days sales in inventory = 365/Inventory Turnover
= 365/2.93
= 125 days
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Accounts Receivable and Inventory Ratios
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