Question

The accounts receivable turnover ratio is calculated byMultiple Choicedividing the amount of credit sales by the average balance of accounts receivable.dividing the average balance of accounts receivable by the amount of credit sales.subtracting the average balance of accounts receivable from the amount of credit sales.subtracting the amount of credit sales from the average balance of accounts receivable.

Answer 1

Answer: The account receivable turnover ratio is calculated by dividing the amount of credit sales by the average balance of account receivable.

Explanation:

The accounts receivable turnover ratio is also referred to as the debtor’s turnover ratio. It is an efficiency ratio that shows how efficiently a firm is collecting revenue and also how efficiently it uses its assets. The accounts receivable turnover ratio shows the number of times within a period that a firm collects the average of its account receivable.

The accounts receivable turnover ratio formula is:

Accounts Receivable Turnover Ratio = Net Credit Sales / Average Accounts Receivable

 

where:

Net credit sales are sales where cash is collected at a future date. The formula for net credit sales is sales on credit – Sales returns – Sales allowances. The average accounts receivable is the addition of starting and ending accounts receivable over a period of time divided by 2.

Answer 2

Answer:

The answer is A.

Explanation:

Accounts Receivable turnover is calculated as:

Total amount of credit sales ÷ Average balance of accounts receivable.

Accounts receivable turnover is used to evaluate the effectiveness and efficiency of a business or firm in collecting its accounts receivable or the money being owed.

A high turnover ratio shows that the company has good customers that are not defaulting or has a strict accounts receivable policy while a low turnover ratio shows that its debtors are not paying as expected.