Chapter 16, Problem 9F15

To determine

Concept Introduction:

Accounts Receivable Turnover and Average Collection Period

Accounts receivable turnover ratio is a measure of the number of times an entity’s accounts receivable are received in a year with respect to the entity’s turnover. It is essential to track this measure in order to see if the credit terms extended to customers are being complied with.

  $\text{Accounts Receivable Turnover Ratio =}\frac{\text{Company's sales over the reporting period}}{\text{Average Balance of Accounts Receivable over the reporting period}}$

Average Collection period is the Average number of days that it takes to realize the monetary benefits from a credit sale. It is calculated by dividing 365 by the Accounts receivable turnover ratio. It helps in tracking the reconciliation between credit periods offered to customers for sales and the time taken to actually receive the money for such sales.

  $\text{Average Collection Period =}\frac{\text{365}}{\text{Accounts Receivable Turnover Ratio}}$

To Compute:

Accounts Receivable Turnover and Average Collection Period