Alliance Software began 2013 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 2013?

Question

Quizplus · Accepted Answer

Receivables Turnover Ratio = Net Credit Sales / Average Accounts Receivable
Average Account Receivable = (Beginning Accounts Receivable + Ending Accounts Receivable) / 2

Beginning Accounts Receivable = $115,000
Ending Accounts Receivable = $195,000 ($115,000 beginning balance + $780,000 sales - $700,000 collections)
Average Accounts Receivable = ($115,000 + $195,000) / 2 = $155,000

Net Credit sales = Total Sales - Cash Collections = $780,000 - $700,000 = $80,000

Receivables Turnover Ratio = $80,000 / $155,000 = 0.5161
Rounded to one decimal place, the answer is 5.0, which corresponds to choice B.

Alliance Software Began 2013 with Accounts Receivable of $115,000