Alpha's net accounts receivable were $500,000 at December 31, 2015, and $600,000 at December 31,...

Question:

Alpha's net accounts receivable were $500,000 at December 31, 2015, and $600,000 at December 31, 2016. Net cash sales for 2016 were $200,000. The accounts receivable turnover for 2016 was 5.0.

Use this information to determine the Fiscal Year 2016: (Round answers to whole dollars only.)

1. Total Net Sales

2. Total Net Credit Sales

Accounts Receivable Turnover

Accounts receivable or AR is an account that shows the balance of payments outstanding owed to a company from its customers or clients for goods delivered or services rendered. Management wants to track its AR balance and ensure that?s the company is promptly collecting on amounts owed Tovar?s the company. One method of such is looking an turns or the AR turnover over ratio. The more turns means the quicker a company is on collecting its receivables. The ratio is equal to net credit sales divided by average AR balance during the period. This ratio shows how effective the company is at managing its credit and collecting.

Answer and Explanation:

1. Total net sales:

AR turnover = net credit sales / average AR balance

5.0 = X / ((600,000 + 500,000) / 2)

5.0 = X / 550,000

Net credit sales = 2,750,000

Net credit sales + net cash sales = total net sales

2,750,000 + 200,000 = 2,950,000

2. Total credit sales

AR turnover = net credit sales / average AR balance

5.0 = X / ((600,000 + 500,000) / 2)

5.0 = X / 550,000

Net credit sales = 2,750,000


Learn more about this topic:

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Accounts Receivable: Definition, Process & Examples

from Accounting 101: Financial Accounting

Chapter 7 / Lesson 1
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