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The following information pertains to Skeleton resorts: Credit sales. $450000 Net accounts receivable beginning. $63000 Net...

The following information pertains to Skeleton resorts:

Credit sales. $450000

Net accounts receivable beginning. $63000

Net accounts receivable ending. $54000

Allowance for Bad debts ending. $5000

Calculate Skeletons receivables turnover ratio, days in receivables ratio and allowance ratio.

Expert Solution

1.Accounts Receivable Turnover Ratio =

Net credit sales / Average accounts receivable

Net credit sales = $450000

Average accounts receivable =

Accounts Receivable beginning + Accounts Receivable ending / 2

Accounts Receivable beginning = $63000

Accounts Receivable ending = Net accounts receivable ending + Allowance for bad debts ending (Note)

= $54000 + $5000

= $59000

Average accounts receivable = $63000 + $59000 / 2

= $122000 / 2

= $61000

Receivable Turnover Ratio = $450000 / $61000

= 7.377 times

2. Days in Receivable Ratio =

Number of days in the year / Receivable Turnover Ratio

= 365 days / 7.377 times

= 49.5 days

3. Allowance ratio =

Allowance for bad debts / Net Credit sales × 100

Allowance for bad debts = $5000

Net credit sales = Credit sales during the period - allowance for bad debts

= $450000 - $5000

= $445000

Allowance ratio = $5000 / $445000 × 100

= 1.12 %

Note - For calculating accounts receivable ending or beginning, gross amount is taken, that is allowance for bad debts are also considered. Since no allowance for bad debts for beginning are given, net accounts receivable beginning are the gross accounts receivable beginning .

ekkarill92 answered 1 year ago

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