Asked by David Plata on Jun 16, 2024
Verified
A company reports the following results in its financial statements:
Calculate the company accounts receivable turnover for Year 2 and Year 3.Compare these two results and give a possible explanation for any significant change.
Accounts Receivable Turnover
A financial metric indicating how quickly a company collects on its accounts receivable.
Financial Statements
Papers that give a summary of a corporation's financial status, featuring the balance sheet, income statement, and statement of cash flows.
- Compute and evaluate the turnover rate of accounts receivable.
- Apply accounts receivable turnover analysis to review financial achievements, judging company aptitude in handling receivables.
Verified Answer
MG
Matthew gerriorJun 19, 2024
Final Answer :
Year 2: Accounts receivable turnover:
$2,100,000/[($165,000+$167,000)/ 2] = 12.7 times
Year 3: Accounts receivable turnover:
$2,500,000/[($167,000+$172,000)/ 2] = 14.7 times
The company's accounts receivable turnover has increased from 12.7 in Year 2 to 14.7 in Year 3.This increase in accounts receivable turnover may indicate that the company has tightened its credit policy or that it has improved on its collection efforts regarding receivables.
$2,100,000/[($165,000+$167,000)/ 2] = 12.7 times
Year 3: Accounts receivable turnover:
$2,500,000/[($167,000+$172,000)/ 2] = 14.7 times
The company's accounts receivable turnover has increased from 12.7 in Year 2 to 14.7 in Year 3.This increase in accounts receivable turnover may indicate that the company has tightened its credit policy or that it has improved on its collection efforts regarding receivables.
Learning Objectives
- Compute and evaluate the turnover rate of accounts receivable.
- Apply accounts receivable turnover analysis to review financial achievements, judging company aptitude in handling receivables.
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