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Hi Zulay!
This is the formula for calculating the ratio. Accounts Receivable Turnover Ratio = annual credit sales / average accounts receivable. Lets first find your annual credit sales which you say is 60% =0.60*2,686,585=1,611,951.00 this is your annual credit sales. two, lets now get the average accounts receivable = 291,277 + 271,766=563,043.00/2 =281,521.50 Annual credit sales=1,611,951.00 Average accounts receivable=281,521.50 Accounts receivable turnover ratio = 1,611,951.00 /281,521.50 =5.7 A high accounts receivable turnover ratio indicates a tight credit policy. A low or declining accounts receivable turnover ratio indicates a collection problem, part of which may be due to bad debts. |
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