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: Accounts Receivable (AR) Turnover

Financial Accounting

14. Financial Statement Analysis

Ratios: Accounts Receivable (AR) Turnover

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Multiple Choice

The accounts receivable turnover ratio measures:

The percentage of accounts receivable written off as uncollectible

How efficiently a company collects cash from its credit customers during a period

The proportion of credit sales to total sales

The average time it takes to pay suppliers

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Verified step by step guidance

Understand the concept of the accounts receivable turnover ratio: It measures how efficiently a company collects cash from its credit customers during a specific period. This ratio is a key indicator of the company's ability to manage its credit policies and collections.

Identify the formula for the accounts receivable turnover ratio: The formula is \( \text{Accounts Receivable Turnover Ratio} = \frac{\text{Net Credit Sales}}{\text{Average Accounts Receivable}} \). This formula helps calculate the frequency at which receivables are converted into cash.

Break down the components of the formula: Net Credit Sales refers to the total sales made on credit minus any returns or allowances. Average Accounts Receivable is calculated as \( \frac{\text{Beginning Accounts Receivable} + \text{Ending Accounts Receivable}}{2} \).

Interpret the result of the ratio: A higher accounts receivable turnover ratio indicates that the company is efficient in collecting receivables, while a lower ratio may suggest inefficiencies or issues with credit policies.

Apply the formula to a given scenario: To calculate the ratio, plug in the values for Net Credit Sales and Average Accounts Receivable into the formula. This will provide insight into the company's collection efficiency during the period.