The following data extracted from the financial statements of AAA company for the year 2018: Net Income $75,000, Net credit sales $295,000, Inventory $59,000 and Account receivable $26,000

Accounting Jan 23, 2021

The following data extracted from the financial statements of AAA company for the year 2018: Net Income $75,000, Net credit sales $295,000, Inventory $59,000 and Account receivable $26,000. In addition, the financial statements for the year 2017 showed that Current liabilities $47,000, Inventory $55,000, Account receivable $24,000 and Marketable securities $32,000. The Account receivable turnover ratio for the year 2018 is:

11.35

11.80

12.30

6.28

Expert Solution

The correct option is b) 11.80

Workings:

Net credit sales for 2018 = $295,000

Average accounts receivable = ($26,000 + $24,000)/2 = $25,000

Accounts Receivable Turnover Ratio = Net credit sales for 2018 / Average accounts receivable

= 295,000 / 25,000

= 11.80

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