Question

The financial statements of the imagine company report net sales of $1,000,000 and accounts receivable of $700,000 and $300,000 at the beginning of the year and end of year, respectively. what is the accounts receivable turnover for the imagine company?

Answer 1

Accounts receivable turnover is the number of times that a company collects its average account receivable per year. The ratio evaluates the ability of a company to issue credit to its customers efficiently and collect funds from them in a timely manner.  A high turnover ratio indicates a number of high-quality customers. A low turnover ratio represents a large proportion of clients having financial difficulties. It also indicates an excessive amount of bad debt.

To answer the question -- what is the accounts receivable turnover for the imagine company, use this computation:

Given:

Net Sales - $1,000,000

Beginning Account Receivable =$700,000

Ending Accounts Receivable = $300,000

Let X = Accounts Receivable Turnover

X = Net Sales ÷ ((Beginning Accounts Receivable + Ending Accounts Receivable) / 2)

X= 1,000,000/ (700,000+300,000)/2

X = 1,000,000/ (1,000,000/2)

X = 1,000,000/500,000

X = 2