The following data are taken from the financial statements of Marigold Company: 2022 2021 Average accounts receivable $539,000 $577,000 Net sales on account 5,605,600 5,308,400 Terms for all sales are 2/10, n/30. Compute for each year the accounts receivable turnover, accounts receivable was $572,000.

2021 = 9.2 times

2022 = 10.4 times

Explanation:

Accounts receivable turnover measure the average times the company received their receivable, It measure the efficiency of the company regarding collection from customers. Turnover will be higher if company has low ratio of receivables to sales value.

                                                    2022         2021

Average accounts receivable $539,000    $577,000

Net sales on account              $5,605,600 $5,308,400

Accounts receivable turnover = Net Sales  / Average Receivable

2021

Accounts receivable turnover = $5,308,400  / $577,000

Accounts receivable turnover = 9.2 times

2021

Accounts receivable turnover = $5,605,600  / $539,000

Accounts receivable turnover = 10.4 times

2022 accounts receivable turnover = 10.4 times

2021 accounts receivable turnover = 9.2 times

Explanation:

Accounts receivable turnover can be described as the number times it takes a company to collect its average accounts receivable within a specified accounting period, usually a year. It is used as a measure of efficiency of a company in collecting account receivables in a timely manner.

Accounts receivable turnover is therefore a ratio of net sales on account to the Average accounts receivable within a specified year. This can be stated as follows:

Accounts receivable turnover = Net sales on account/Average accounts receivable ………. (1)

Using equation (1), accounts receivable turnover for 2022 and 2021 can be calculated as follows:

2022 accounts receivable turnover = $5,605,600/$539,000 = 10.4 times

2021 accounts receivable turnover = $5,308,400/$577,000 = 9.2 times

The results imply that Marigold Company is more efficient in collecting account receivable in 2021 than 2022, because it takes fewer number of times in 2021, 9.2 times, than in 2022, 10.4 times.

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