use these data to compute accounts receivable turnover ratios and average for 2005 and 2006
2005 2006
net sales $1,425,000 $1,650,000
net receivable:
beginning of yr $375,000 $333,500
end of yr $420,000 $375,000
To compute the accounts receivable turnover ratio, you will need the net sales and average accounts receivable for each year.
Accounts Receivable Turnover Ratio = Net Sales / Average Accounts Receivable
First, let's calculate the average accounts receivable for 2005 and 2006:
Average Accounts Receivable = (Beginning Accounts Receivable + Ending Accounts Receivable) / 2
For 2005:
Average Accounts Receivable = ($375,000 + $420,000) / 2 = $397,500
For 2006:
Average Accounts Receivable = ($333,500 + $375,000) / 2 = $354,250
Now, let's calculate the accounts receivable turnover ratio for each year:
For 2005:
Accounts Receivable Turnover Ratio = $1,425,000 / $397,500 ≈ 3.59 times
For 2006:
Accounts Receivable Turnover Ratio = $1,650,000 / $354,250 ≈ 4.65 times
Finally, let's calculate the average accounts receivable turnover ratio for 2005 and 2006:
Average Accounts Receivable Turnover Ratio = (Accounts Receivable Turnover Ratio for 2005 + Accounts Receivable Turnover Ratio for 2006) / 2
Average Accounts Receivable Turnover Ratio = (3.59 + 4.65) / 2 ≈ 4.12 times
Therefore, the accounts receivable turnover ratios for 2005 and 2006 are approximately 3.59 times and 4.65 times, respectively. The average accounts receivable turnover ratio for the two years is approximately 4.12 times.