Question

Below are amounts (in millions) from three companies' annual reports. beginning accounts receivable ending accounts receivable net sales walco $1,785 $2,732 $319,427 tarmart 6,016 6,544 64,878 costget 599 635 65,963 required: 1. calculate the receivables turnover ratio and the average collection period for walco, tarmart and costget.

Answer 1

Answer: Figures are not in millions ('000)

Explanation:

Formula

Receivable turnover ratio(RTR)= Net credit sales/Average account receivable

Where average account receivable((AAR)

AAR=opening receivable+closing receivable/2

Average collection period=365/Receivable turnover ratio

WALCO

Average receivable=1785+2732/2

AAR=4517/2

AAR=$2258.5

Turnover ratio=319427/2258.5

Receivable turnover ratio=141.43 times

ACP=365/141.43

Average collection period=2.58 days

TARMART

Average receivable=6016+6544/2

AAR=12560/2

AAR=$6280

Turnover ratio=64878/6280

Receivable turnover ratio=10.33 times

ACP=365/10.33

Average collection period=35.34 days

COSTGET

Average receivable=599+635/2

AAR=1234/2

AAR=617

Turnover ratio=65963/617

Receivable turnover ratio=106.87 times

ACP=365/106.87

Average collection period=3.42 days

Average collection period is the number of days it takes for credit sales to be paid.