The following accounts and balances are taken from year end financial statements
ID: 2385162 • 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 period for YEAR 3. Round your answers to one place after the decimal point.
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
Accounts receivable turnover ratio= Net sales on account/Average receivables 2550/170= 15 Average collection period= 365/Turnover ratio 365/15= 24.33 days