Concept explainers
(a)
Accounts receivable turnover
Accounts receivable turnover is a liquidity measure of accounts receivable in times, which is calculated by dividing the net credit sales by the average amount of net accounts receivables. In simple, it indicates the number of times the average amount of net accounts receivables has been collected during a particular period.
Average collection period:
Average collection period indicates the number of days taken by a business to collect its outstanding amount of accounts receivable on an average.
To calculate: The accounts receivable turnover for Year 2 and Year 1.
(b)
To calculate: The day’s sales in receivables at the end of Year 2 and Year 1.
(c)
To conclude: The Efficiency of Corporation C’s management in collecting accounts receivables.
(d)
To ascertain: Whether Corporation C’s accounts receivable turnover ratio would be higher or lower than a typical manufacturing company.
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