Chapter 5, Problem 5.18E

To determine

Accounts receivable turnover ratio:

Accounts receivable turnover is a liquidity measure of accounts receivable in times, which is calculated by dividing the net credit sales by the average amount of net accounts receivables and it indicates the number of times the average amount of net accounts receivables collected during a particular period

Higher receivables turnover ratio is preferable, since the more number of times the average amount of net accounts receivables collected during a particular period is better.

Average collection period:

Average collection period refers to the way to express the efficiency measure. Average collection period of receivables are measured in terms of days. It indicates the average number of days required for collecting invoiced amounts from the customers and it determines the effectiveness of the companies’ credit policies and collectable efforts and lower average collection period is preferable.

To calculate: receivables turnover ratio and average collection period and which company appears most efficient in collecting cash from sales.