Chapter 13, Problem 13.11BE

a)

To determine

Accounts Receivable Turnover Ratio: This ratio is mainly used to evaluate the collection process efficiency. It helps the company to know the number of times the accounts receivable is collected in a particular time period. Main purpose of accounts receivable turnover ratio is to manage the working capital of the company.

Formula:

$\begin{array}{l}\text{Accounts receivables}\\ \text{ turnover ratio}\end{array}\}=\frac{\text{Net credit sales}}{\text{Average accounts receivables}}$

Average collection period: This ratio is used to measure the number of days a particular company takes to collect their accounts receivables.

Formula:

$\text{Average}\text{collection}\text{period}=\frac{\text{Days in accounting period }\left(365\text{days}\right)}{\text{Accounts receivables turnover}}$

To compute: Accounts receivable turnover ratio for the year 2014.

b)

To determine

To compute: Average collection period for 2014 and 2013.