Accounts receivable turnover ratio (1 Viewer)

[Loz_metalhead]

This question was added into the trial by my teacher.

Sales=$200 000
Accounts r/c =$30 000

I keep getting 54.75

She wrote 6.7...please help.

 

[B35tY]

Hmm, well your teacher has obviously calculated it as:

Turnover = Sales / Accounts receivable

However, i'm certain (and my textbook agrees) that the ratio should be

Accounts receivable / (Sales / 365)

Which i assume gives an answer of 54.75, no?

I think your teacher is just wrong.

 

[Loz_metalhead]

We were given a balance sheet.

The question:

Calculate ONE efficiency ratio and comment on the efficiency

 

[B35tY]

Accounts Receivable Turnover
This ratio shows the number of times accounts receivable are paid and reestablished during the accounting period. The higher the turnover, the faster the business is collecting its receivables and the more cash the client generally has on hand. However, if the ratio is too high then the firm may be offering too large of a discount for early payment or may have too restrictive credit terms. The Receivables Turnover Ratio is calculated by dividing Sales by Accounts Receivables

The Receivables Turnover formula is:


Total Net Sales
_____________________

Accounts Receivable

= 200 000/30 000
= 6.7


Days Receivable Ratio
The Days' Receivables Ratio is calculated by dividing the number of days in a year, 365, by the Receivables Turnover Ratio. Therefore, the Days' Receivables indicates how long, on average, it takes for the firm to collect on its sales to customers on credit. This ratio is also known as the Days' Sales Outstanding (DSO) or Average Collection Period (ACP).

The formula is:


365 Days
_____________________

Accounts Receivable Turnover

=365/6.7
=54.75


What was the actual wording of teh question?

tbh i believe you because i don't like my textbook at all, but it only mentioned the accounts receivable, not the days receivable one at all.

However, it told me to calculate the accounts receivable as if it were the days receivable ratio.

Now i'm very confused..

 

[Loz_metalhead]

I'm confused now, aswell.

If they ask us to calculate the Accounts receivable turnover ratio do we just do sales/accounts rc The lower the number the worse it is.

 

[pabzieee]

hey. im currently doing up my study notes on this.
and it seems theres conflicting fromulas
ART ratio = Sales revenue accounts recievable
_________________ _________________
Average accounts receivable vs sales / 365

+

avg. collection period = 365 (version sated online by students)
_____
recievables turnover ratio ( answer from above)


i got the answer 54.75 with the shorter version. *u shulda got marked right.


is my text wrong?? reply..

( my school text book version)

 

[the-derivative]

I'm confused now, aswell.

If they ask us to calculate the Accounts receivable turnover ratio do we just do sales/accounts rc The lower the number the worse it is.

I was taught you need to divide the sales/accounts receivable by 365, because that will actually give you the actual amount of days.

hey. im currently doing up my study notes on this.
and it seems theres conflicting fromulas
ART ratio = Sales revenue accounts recievable
_________________ _________________
Average accounts receivable vs sales / 365

+

avg. collection period = 365 (version sated online by students)
_____
recievables turnover ratio ( answer from above)


i got the answer 54.75 with the shorter version. *u shulda got marked right.


is my text wrong?? reply..

( my school text book version)

I use...

Annual Credit Sales
------------------------- = x
Accounts Recievable

Therefore final answer is 365/x.

 

[Eddykungfu]

Ahh No Your teacher is correct, and you are correct too:

ART (Accounts receivable Turnover) = Sales (Or Credit Sales if Given)/ Accounts Receivable.

ART = the Number of times a year you collect payment.

If you wish to go further, you can find the average number of DAYS it takes per collection.

Avg. No of days = 365/ ART.

Example, Lets do your question.

Sales=$200 000
Accounts r/c =$30 000

ART = Sales/ Accounts Receivable
ART = 200000 / 30 000

= 6.7 (nearest 10th )

So this means the businesses collect their debts ~ 6.7 times a year.

Now to find the number of days (Which I think you were doing).

Avg Number of days = 365/ 6.7
= 54.47
~= 54 days (nearest day)

Hope this helps

 

[- Alex -]

but isnt it usually is in terms of days?