Asked by Pallavi Kumar on Jul 09, 2024
Verified
Rivers Company had accounts receivable of $150000 on January 1 2016. The only transactions that affected accounts receivable during 2016 were net credit sales of $1500000 cash collections of $1400000 and accounts written off of $50000.
Instructions
(a) Compute the ending balance of accounts receivable.
(b) Compute the accounts receivable turnover for 2016.
(c) Compute the average collection period in days.
Accounts Receivable Turnover
A financial metric used to measure how efficiently a company collects revenue from its credit sales, calculated by dividing net credit sales by the average accounts receivable.
Average Collection Period
The mean period required for a company to get payment from its clients.
- Comprehend the modification and depiction of accounts receivable on financial statements, incorporating analysis of aging schedules.
- Understand the calculation and interpretation of the accounts receivable turnover and average collection period.
Verified Answer
AK
amrit kahlonJul 13, 2024
Final Answer :
(a)
Beginning accounts receivable $150,000 Net credit sales.1,500,000Cash collections (1,400,000) Accounts written off(50,000) Ending accounts receivable $200,000\begin{array}{lrr} \text { Beginning accounts receivable } &\$150,000\\ \text { Net credit sales.} &1,500,000\\ \text {Cash collections } &(1,400,000)\\ \text { Accounts written off} &(50,000)\\ \text { Ending accounts receivable } &\$200,000\\\end{array} Beginning accounts receivable Net credit sales.Cash collections Accounts written off Ending accounts receivable $150,0001,500,000(1,400,000)(50,000)$200,000
(b) $1500000/[($150000 + $200000)/2] = 8.57
(c) 365/8.57 = 42.6 days
Beginning accounts receivable $150,000 Net credit sales.1,500,000Cash collections (1,400,000) Accounts written off(50,000) Ending accounts receivable $200,000\begin{array}{lrr} \text { Beginning accounts receivable } &\$150,000\\ \text { Net credit sales.} &1,500,000\\ \text {Cash collections } &(1,400,000)\\ \text { Accounts written off} &(50,000)\\ \text { Ending accounts receivable } &\$200,000\\\end{array} Beginning accounts receivable Net credit sales.Cash collections Accounts written off Ending accounts receivable $150,0001,500,000(1,400,000)(50,000)$200,000
(b) $1500000/[($150000 + $200000)/2] = 8.57
(c) 365/8.57 = 42.6 days
Learning Objectives
- Comprehend the modification and depiction of accounts receivable on financial statements, incorporating analysis of aging schedules.
- Understand the calculation and interpretation of the accounts receivable turnover and average collection period.