Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

14. Financial Statement Analysis

Ratios: Average Collection Period (Days Sales Outstanding)

Financial Accounting

14. Financial Statement Analysis

Ratios: Average Collection Period (Days Sales Outstanding)

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Multiple Choice

When determining the average collection period (Days Sales Outstanding), how is the accounts receivable turnover ratio calculated?

Net Credit Sales divided by Total Assets

Average Accounts Receivable divided by Total Sales

Net Credit Sales divided by Average Accounts Receivable

Average Accounts Receivable divided by Net Credit Sales

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Verified step by step guidance

Understand the concept: The accounts receivable turnover ratio measures how efficiently a company collects its receivables. It is calculated by dividing Net Credit Sales by Average Accounts Receivable.

Step 1: Identify the Net Credit Sales. This represents the total sales made on credit during a specific period, excluding cash sales.

Step 2: Determine the Average Accounts Receivable. This is calculated by taking the sum of the beginning and ending accounts receivable balances for the period and dividing by 2.

Step 3: Use the formula for accounts receivable turnover ratio:

\frac{Net Credit Sales}{Average Accounts Receivable}

Step 4: Once the accounts receivable turnover ratio is calculated, it can be used to determine the average collection period (Days Sales Outstanding) by dividing the number of days in the period (e.g., 365 days for a year) by the accounts receivable turnover ratio.