Question

The Rye Corporation has provided the following information: Total sales were $1,240,000. Beginning net accounts receivable was $49,000. Ending net accounts receivable was $63,000. Sales returns and allowances totaled $108,000. What was Rye’s receivables turnover ratio?

Answer 1

Answer:

The receivables turnover ratio of Rye is 20.21

Explanation:

The receivables turnover ratio of Rye is computed as:

Receivables turnover ratio = Net Sales / Average Accounts Receivable

where

Net Sales = Sales - Sales returns and allowances

Net Sales = $1,240,000 - $108,000

Net Sales = $1,132,000

Average Accounts Receivable = Beginning Net Accounts Receivable + Ending Net Accounts Receivable / 2

Average Accounts Receivable = $49,000 + $63,000 / 2

Average Accounts Receivable = $112,000 / 2

Average Accounts Receivable = $56,000

Putting the values above:

Receivables turnover ratio  = $1,132,000 / $56,000

Receivables turnover ratio  = 20.21