Magneto Company had net credit sales during the year of $1,350,000 and cost of goods sold of $810,000. The balance in accounts receivable at the beginning of the year was $180,000, and the end of the year it was $120,000. What was the accounts receivable turnover?

Question

Business

Madilynn Elliott

30 April, 17:24

Magneto Company had net credit sales during the year of $1,350,000 and cost of goods sold of $810,000. The balance in accounts receivable at the beginning of the year was $180,000, and the end of the year it was $120,000. What was the accounts receivable turnover?

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Answers (1)

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Adelyn Rangel · Answer 1

Account receivable turnover ratio = 9

Explanation:

The account receivable turnover ratio shows how well a business is managing its credit line it extended to its customers. It provides information on how effective a business is in the collection of amounts due from customers in respect of credit sales made.

It is calculated using the formula below:

Account receivable turnover =

Net credit sales / Average account receivable

Average account receivable=

(Receivable balance at the begin. + Receivable balance at the end) / 2

We can calculate the account receivable turnover for Magneto Company as follows:

Step 1

calculate the average account receivable

= ($180,000 + $120,000) / 2

= $150,000

Step 2

Calculate the account receivable turnover ratio (ARTR)

ART = $1,350,000/$150,000

= 9

Account receivable turnover ratio = 9