Question

MULTIPLECHO?CEQUEST?ONS and then Answer ALL the questions. Put a circle clearly on the correct option explain your answer in the given space. I1 mark for identifying the correct option+3 marks for explanation) Use the following information for questions 1 and 2. In 2008 Keliso Co. had credit sales of $1,800,000 and sales returns and allowances related to these sales of $150,000. Its comparative balance sheet at December 31, 2008 showed the following: _1008- $800,000 Less: Allowance for doubtful accounts 72.000 5728.000 2007 $675,000 Accounts receivable Net realizable value 5610.000 1. Keliso's receivable turnover for 2008 is a. 2.24 b. 2.44 c. 2.47 d. 2.69 Explain:

Answer 1

Account Receivable turnover ratio=	Net Credit Sales/Average Account Receivable
	=1800000-150000/(800000+675000)/2
	2.24
Note: The account receivable should be taken gross i.e the allowance from doubtful debt should not be considered.
Ratio of net credit sales to average trade debtors is called debtors turnover ratio. It is also known as receivables turnover ratio. This ratio is expressed in times.
Accounts receivables is the term which includes trade debtors and bills receivables. It is a component of current assets and as such has direct influence on working capital position (liquidity) of the business. Perhaps, no business can afford to make cash sales only thus extending credit to the customers is a necessary evil. But care must be taken to collect book debts quickly and within the period of credit allowed. Otherwise chances of debts becoming bad and unrealizable will increase
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