Alliance Software began 2009 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 for 2009?

Question

Quizplus · Accepted Answer

Receivables Turnover Ratio is calculated as Sales / Average Accounts Receivable.

Average Accounts Receivable = (Beginning Accounts Receivable + Ending Accounts Receivable) / 2

Beginning Accounts Receivable = $115,000

Ending Accounts Receivable = Sales - Cash Collections = $780,000 - $700,000 = $80,000

Average Accounts Receivable = ($115,000 + $80,000) / 2 = $97,500

Receivables Turnover Ratio = $780,000 / $97,500 = 8

Therefore, the correct answer is B) 5.03.

Alliance Software Began 2009 with Accounts Receivable of $115,000