The following accounts and balances are taken from year end financial statements
ID: 2384962 • Letter: T
Question
The following accounts and balances are taken from year end financial statements. Calculate the accounts receivable turnover ratio and the average collection for YEAR 2.
Year 3 Year 2 Year 1
Current assets
Cash and marketable securities $ 140,000 $ 100,000 $ 80,000
Accounts receivable, net 180,000 160,000 140,000
Inventory 190,000 200,000 180,000
Total current assets 510,000 460,000 400,000
Current liabilities
Accounts payable $ 130,000 $ 160,000 $140,000
Accrued liabilities 30,000 50,000 40,000
Notes payable, short term 130,000 130,000 130,000
Total current liabilities 290,000 340,000 310,000
Sales (all on account) $2,550,000 $2,100,000
Cost of goods sold $ 1,700,000 $ 1,400,000
Explanation / Answer
Average accounts receivable in year 2 (160,000+140,000)/2= 150,000 So A/R turnover is 2,100,000/150,000= 14.0 and average collection period is 365/14= 26.07 days.