Concept explainers
Concept Introduction:
Accounts receivable turnover ratio:
This is an efficiency ratio that indicates the conversion of accounts receivable into cash. This ratio is calculated by dividing the Net credit Sales by the Average accounts receivable. The formula to calculate this ratio is as follows:
Inventory Turnover Ratio:
Inventory Turnover Ratio measures the efficiency of the company in converting its inventory into sales. It is calculated by dividing the Cost of goods sold by Average inventory. The formula of the Inventory Turnover Ratio is as follows:
Note: Average inventory is calculated with the help of following formula:
To Comment:
On the receivable and inventory management by both the companies
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Survey of Accounting (Accounting I)
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- Accounts Receivable Calculations The following amounts were reported for Cotton, Newton, and Miller Companies: Required: Next Level Compute the missing amounts.arrow_forwardFINANCIAL RATIOS Based on the financial statements, shown on pages 603604, for McDonald Carpeting Co. (income statement, statement of owners equity, and balance sheet), prepare the following financial ratios. All sales are credit sales. The balance of Accounts Receivable on January 1, 20--, was 6,800. 1. Working capital 2. Current ratio 3. Quick ratio 4. Return on owners equity 5. Accounts receivable turnover and average number of days required to collect receivables 6. Inventory turnover and average number of days required to sell inventoryarrow_forwardInventory Analysis Singleton Inc. reported the following information for the current year: Required: Compute Singletons (a) gross profit ratio, (b) inventory turnover ratio, and (c) average days to sell inventory. (Note: Round all answers to two decimal places.)arrow_forward
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