Question

Parr Hardware Store had net credit sales of $6.5mil and cost of goods sold of $5mil for the year. The Accounts Receivable balances at the beginning and end of the year were $600k and $700k, respectively. The receivables turnover was

Answer 1

Answer:

Accounts Receivables Turnover Ratio = $\frac{6,500,000}{650,000}$ = 10 times.

Explanation:

Accounts Receivables Turnover ratio = $\frac{Net \:Credit \: Sales}{Average \: Receivables}$

Here Net Credit Sales = $6.5 million

Accounts Receivables Opening Balance = $600,000

Accounts Receivables Closing Balance = $700,000

Average Accounts Receivable Balance = $\frac{600,000 \:+ 700,000}{2} = 650,000$

Accounts Receivables Turnover Ratio = $\frac{6,500,000}{650,000}$ = 10 times.

This shows that accounts receivables are on an average 1/10th of credit sales.

Final Answer

Accounts Receivables Turnover Ratio = $\frac{6,500,000}{650,000}$ = 10 times.