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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

A company that grants terms of n/30 on all sales has a yearly accounts receivable turnover, based on monthly averages, of 9. Is this a satisfactory turnover? Discuss.

To determine

Concept Introduction:

Accounts receivable turnover ratio:

This is an efficiency ratio that indicates the conversion of the accounts receivable into cash. This ratio is calculated by dividing the Net credit Sales by the Average accounts receivable. The formula to calculate this ratio is as follows:

  Accounts receivable turnover ratio = Net credit SalesAverage accounts receivable 

To Indicate:

If the accounts receivable turnover is satisfactory for the company.

Explanation

Accounts receivable turnover ratio is an efficiency ratio that indicates the conversion of accounts receivable into cash. This ratio is calculated by dividing the Net credit Sales by the Average accounts receivable...

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