Question

Kerwick Company had accounts receivable of $100,000 on January 1, 2017. The only transactions that affected accounts receivable during 2017 were net credit sales of $1,000,000, cash collections of $92,000 and accounts written off of $30,000.

a) Compute the ending balance of accounts receivable.

b) Compute the accounts receivable turnover for 2017.

c) Compute the average collection period in days.

(a) Beginning Accounts Receivable ADD: Net Credit Sales $ 100,000 $1,000,000 $150,000 Ending Accounts Receivable (b) Show your calculation below Answer FYI: CRITICAL INFO for Small Business Owner... The ratio is used to measure how effective you are at giving credit and collecting those debts. Generally, the higher the accounts receivable turnover ratio, the more efficient your business is at collecting credit from your customers. (Too low for too long out of business) Show your calculation below (what divided by what) Answer FYI: Average number of days between the date a credit sale is made and the date the purchaser pays for that sale. This number indicates the effectiveness of its accounts receivable management. A low average collection period indicates the organization collects payments faster. There is a downside to this, though, as it may indicate its credit terms are too strict. Customers may seek suppliers or service providers with more lenient payment terms.

Answer 1

(a). Ending Balance of Accounts Receivable Beginning Account Receivable Add : Net Credit sales Less : Cash Collections Less : Accounts Written off $ 100,000.00 $ 1,000,000.00 $ (920,000.00) $ (30,000.00) Ending Balance of Accounts Receivable $ 150,000.00 Note : Cash Collections were $920,000 In Question By Mistake You Have Written $92,000 (b). Accounts Receivable Turnover for 2017 Formula : Net Credit Sales - Avg Accounts Receivable $10,00,000/ [($100,000+ $150,000)/2] 8 Times [c]. Average Collection Period Formula : 365 Days / Accounts Receivable Turnover 365 days/ 8 45.625 Days