Concept explainers
Accounts receivable turnover ratio:
Accounts receivable turnover is a liquidity measure of accounts receivable in times, which is calculated by dividing the net credit sales by the average amount of net accounts receivables and it indicates the number of times the average amount of net accounts receivables collected during a particular period
Higher receivables turnover ratio is preferable, since the more number of times the average amount of net accounts receivables collected during a particular period is better.
Average collection period:
Average collection period refers to the way to express the efficiency measure. Average collection period of receivables are measured in terms of days. It indicates the average number of days required for collecting invoiced amounts from the customers and it determines the effectiveness of the companies’ credit policies and collectable efforts and lower average collection period is preferable.
To calculate: receivables turnover ratio and average collection period and which company appears most efficient in collecting cash from sales.
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Financial Accounting
- The following information relates to a company’s accounts receivable: gross accounts receivable balance at the beginning of the year, $350,000; allowance for uncollectible accounts at the beginning of the year, $24,000 (credit balance); credit sales during the year, $1,200,000; accounts receivable written off during the year, $15,000; cash collections from customers, $1,100,000. Assuming the company estimates that future bad debts will equal 12% of the year-end balance in accounts receivable.1. Calculate bad debt expense for the year.2. Calculate the year-end balance in the allowance for uncollectible accounts.arrow_forwardA company recorded the following transactions: cash sales $10,000, credit sales $20,000, cash received from customers $15,000, and accounts receivable at the beginning of the period $5,000. Calculate the accounts receivable turnover ratio and the average collection period.arrow_forwardThe following information relates to a company’s accounts receivable: gross accounts receivable balance at the beginning of the year, $300,000; allowance for uncollectible accounts at the beginning of the year, $25,000 (credit balance); credit sales during the year, $1,500,000; accounts receivable written off during the year, $16,000; cash collections from customers, $1,450,000. Assuming the company estimates that future bad debts will equal 10% of the year-end balance in accounts receivable. 1. Calculate bad debt expense for the year.2. Calculate the year-end balance in the allowance for uncollectible accounts.arrow_forward
- The following information relates to a company’s accounts receivable: gross accounts receivable balance at the beginning of the year, $300,000; allowance for uncollectible accounts at the beginning of the year, $25,000 (credit balance); credit sales during the year, $1,500,000; accounts receivable written off during the year, $16,000; cash collections from customers, $1,450,000. Assuming the company estimates bad debts at an amount equal to 2% of credit sales, calculate (1) bad debt expense for the year and (2) the year-end balance in the allowance for uncollectible accounts.arrow_forwarda) Calculate Kopitiam Sdn Bud’s accounts receivable turnover ratio for Year 2 and Year 3. b) Calculate the number of days the average balance of receivables is outstanding before being converted into cash (turnover in days) for Year 2 and Year 3 c) What problem do you see with the company’s credit policy if the terms are net 30 days? Explain your answer.arrow_forwardA company reports the following: Sales Average accounts receivable (net) Determine (a) the accounts receivable turnover and (b) number of days' sales in receivables. Round your answers to one decimal place. Assume a 365- day year. a. Accounts receivable turnover $398,580 76,650 b. Number of days' sales in receivables daysarrow_forward
- Below are amounts (in millions) from three companies' annual reports. Beginning Accounts Receivable $ 1,795 6,066 609 WalCo TarMart CostGet Required: 1. Calculate the receivables turnover ratio and the average collection period for WalCo, TarMart and CostGet. 2. Which company appears most efficient in collecting cash from sales? Required 1 Required 2 Complete this question by entering your answers in the tabs below. WalCo TarMart CostGet Ending Accounts Receivable $ 2,742 6,594 645 Calculate the receivables turnover ratio and the average collection period for WalCo, TarMart and CostGet. Note: Rounded to one decimal place. Enter your dollar answers in millions. WalCo TarMart CostGet Choose Numerator Net Sales $ 320,427 65,878 66,963 Choose Numerator Receivables Turnover Ratio Choose Denominator Average Collection Period Choose Denominator Receivables turnover ratio times times times Average collection period days days daysarrow_forwardThe Rivers Company reports the following data relative to accounts receivable. The terms of sale are net 30 days. (check the attached photo) Requirement: (A) Compute the accounts receivable turnover and (B) the collection period.arrow_forwardXYZ Company has the following information: Beginning accounts receivable: $50,000 Ending accounts receivable: $60,000 Credit sales: $200,000 Cash collections: $180,000 Calculate the company's accounts receivable turnover ratio and average collection period.arrow_forward
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- Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub