Accounts receivable (A/R) turnover is calculated using which formula?

• A. Cost of goods sold divided by average accounts receivable
• B. Net sales divided by ending accounts receivable
• C. Average accounts receivable divided by net credit sales
• D. Net credit sales divided by average accounts receivable

Answer: (D)

Verified step by step guidance

1. Understand that Accounts Receivable (A/R) Turnover measures how efficiently a company collects its receivables and converts them into cash.
2. Identify the key components needed for the formula: Net Credit Sales and Average Accounts Receivable.
3. Recall that Net Credit Sales refers to sales made on credit minus any returns or allowances, representing the actual credit sales during the period.
4. Calculate Average Accounts Receivable by adding the beginning and ending accounts receivable balances and dividing by 2: \(\text{Average A/R} = \frac{\text{Beginning A/R} + \text{Ending A/R}}{2}\).
5. Apply the formula for A/R Turnover: \(\text{A/R Turnover} = \frac{\text{Net Credit Sales}}{\text{Average Accounts Receivable}}\).