A Fort Lauderdale contractor had beginning accounts receivable of $82,000, ending accounts receivable of $98,000, and annual credit sales of $1,080,000. What is accounts receivable turnover?
Correct Answer
D) 12.0 times
Average accounts receivable is $90,000, and $1,080,000 divided by $90,000 equals 12.0 times.
Why This Is the Correct Answer
Average accounts receivable is $90,000, and $1,080,000 divided by $90,000 equals 12.0 times.
Why the Other Options Are Wrong
Option A: 10.8 times
10.8 times is below the supported result for accounts receivable turnover; it likely uses the wrong base, period, or account bucket.
Option B: 11.4 times
11.4 times is below the supported result for accounts receivable turnover; it likely uses the wrong base, period, or account bucket.
Option C: 12.6 times
12.6 times is above the supported result for accounts receivable turnover; it likely adds an unsupported amount or compares the wrong financial base.
Memory Technique
Accounts drawer for Reviewing Performance: label average before counting dollars.
Reference Hint
Open-book path: tab Builder's Guide to Accounting, 2001 to Section One, Managing Receivables, Track Your Receivables Trend; Section Three, Financial Ratios; use the job ledger figures in the stem and recompute the same accounting measure.
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