What was the accounts receivable turnover for Bonita Company?
The accounts receivable turnover for Bonita Company is 10.
Understanding Accounts Receivable Turnover
Accounts Receivable Turnover is a financial ratio that measures the number of times a company collects its average accounts receivable balance during a specific period. It helps to assess how efficiently a company manages its credit policies and collects its outstanding debts from customers.
To calculate the Accounts Receivable Turnover for Bonita Company, we use the formula:
Accounts Receivable Turnover = Net Credit Sales / Average Accounts Receivable
First, we need to calculate the Average Accounts Receivable by finding the average of the beginning and ending accounts receivable balances. In this case:
Beginning Accounts Receivable = $170,000
Ending Accounts Receivable = $100,000
Average Accounts Receivable:
= ($170,000 + $100,000) / 2
= $135,000
Given:
Net Credit Sales = $1,350,000
Therefore, the accounts receivable turnover for Bonita Company is calculated as follows:
Accounts Receivable Turnover = $1,350,000 / $135,000
Accounts Receivable Turnover = 10
This means that Bonita Company was able to collect its average accounts receivable balance 10 times during the year. A higher turnover ratio indicates a more efficient collection process, while a lower ratio may suggest potential issues with credit policies or collection efforts.
In conclusion, with an accounts receivable turnover of 10, Bonita Company demonstrated a strong ability to collect its outstanding debts in a timely manner. This ratio provides valuable insights into the company's financial health and efficiency in managing its accounts receivable.