Alliance Software began 2016 with accounts receivable of $115,000.All sales are made on credit.Sales and cash collections from customers for the year were $780,000 and $700,000,respectively.Cost of goods sold for the year was $450,000.What was Alliance's receivables turnover ratio (rounded)for 2016?

Question

Quizplus · Accepted Answer

Receivables turnover ratio = Sales / Average accounts receivable
Average accounts receivable = (Beginning accounts receivable + Ending accounts receivable) / 2

In this case, beginning accounts receivable was $115,000 and ending accounts receivable can be calculated as:
Ending accounts receivable = Beginning accounts receivable + Sales - Cash collections
Ending accounts receivable = $115,000 + $780,000 - $700,000 = $195,000

Therefore, average accounts receivable = ($115,000 + $195,000) / 2 = $155,000

Receivables turnover ratio = $780,000 / $155,000 = 5.03 (rounded)

Alliance Software Began 2016 with Accounts Receivable of $115,000