Handles Corp. reported net credit sales of $6,500,000 and cost of goods sold of $3,400,000 for the year. The Accounts Receivable balances at the beginning and end of the year were $525,000 and $575,000, respectively. The receivables turnover ratio was
A) 6.2 times.
B) 11.3 times.
C) 11.8 times.
D) 5.9 times.

Question

Quizplus · Accepted Answer

The receivables turnover ratio is calculated by dividing net credit sales by the average accounts receivable. The average accounts receivable is calculated by adding the beginning and ending accounts receivable balances and dividing by 2. In this case, the average accounts receivable is ($525,000 + $575,000) / 2 = $550,000. The receivables turnover ratio is therefore $6,500,000 / $550,000 = 11.8 times.