Concept explainers
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 and it indicates the number of times the average amount of net accounts receivables collected during a particular period
Higher receivables turnover ratio is preferable, since the more number of times the average amount of net accounts receivables collected during a particular period is better.
Average collection period:
Average collection period refers to the way to express the efficiency measure. Average collection period of receivables are measured in terms of days. It indicates the average number of days required for collecting invoiced amounts from the customers and it determines the effectiveness of the companies’ credit policies and collectable efforts and lower average collection period is preferable.
To calculate: receivables turnover ratio and average collection period and which company appears most efficient in collecting cash from sales.
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Financial Accounting
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- sanjuarrow_forwardBelow are amounts (in millions) from three companies' annual reports. Beginning Accounts Receivable $ 1,795 6,066 609 WalCo TarMart CostGet Required: 1. Calculate the receivables turnover ratio and the average collection period for WalCo, TarMart and CostGet. 2. Which company appears most efficient in collecting cash from sales? Required 1 Required 2 Complete this question by entering your answers in the tabs below. WalCo TarMart CostGet Ending Accounts Receivable $ 2,742 6,594 645 Calculate the receivables turnover ratio and the average collection period for WalCo, TarMart and CostGet. Note: Rounded to one decimal place. Enter your dollar answers in millions. WalCo TarMart CostGet Choose Numerator Net Sales $ 320,427 65,878 66,963 Choose Numerator Receivables Turnover Ratio Choose Denominator Average Collection Period Choose Denominator Receivables turnover ratio times times times Average collection period days days daysarrow_forwardKmuarrow_forward
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