Question

Universal Calendar Company began the year with accounts receivable and inventory balances of $100,000 and $80,000, respectively. Year-end balances for these accounts were $120,000 and $60,000, respectively. Sales for the year of $600,000 generated a gross profit of $200,000. Calculate the receivables and inventory turnover ratios for the year.

Answer 1

Step 1.

Receivables turnover ratio =                  Net sales

                                               Average accounts receivable (net)

Receivables turnover ratio =                  $600,000

                                                   [$100,000 + 120,000] / 2

 

Receivables turnover ratio = 5.45 times

 

 

Step 2.

Inventory turnover ratio =               Cost of goods sold

                                                         Average inventory

Inventory turnover ratio =                      $400,000*

                                                      [$80,000 + 60,000] / 2

 

Inventory turnover ratio = 5.71 times

 

 

*$600,000 - 200,000

Receivables turnover ratio = 5.45 times

Inventory turnover ratio = 5.71 times