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College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756

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Section
BuyFindarrow_forward

College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756
Textbook Problem

LO4 To calculate the accounts receivable turnover ratio, ______ is divided by average accounts receivable.

  1. (a) Net sales
  2. (b) Cost of goods sold
  3. (c) Total sales
  4. (d) Net credit sales

To determine

Identify the option that is divided by average accounts receivable in order to calculate the accounts receivables turnover ratio.

Explanation

Justification for the incorrect options of (a), (b) and (c):

Net sales, cost of goods sold and total sales are not used for computing accounts receivable turnover ratio. Therefore, these are incorrect options.

Justification for the correct option (d):

Accounts receivable turnover is a liquidity measure of accounts receivable in times, which is computed by dividing “the net credit sales by the average amount of net accounts receivables”.

It indicates the number of times the average amount of net accounts receivables collected during a particular period.

Formula to compute accounts receivables turnover ratio is as follows:

Accountsreceivable

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