Learning Journal unit 7 PDF

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LEARNING JOURNAL UNIT 7 For this week’s reflection, please write three complete and well composed paragraphs and, in your own words (do not quote from a book or website) explain what a receivable turnover calculation is and how it is used. Receivable turnover calculation also known as the debtor turnover ratio is an account used by a firm to quantify a firm's effectiveness in extending credit and in collecting debts on that credit in a period of time. The receivables turnover ratio is intended to measure how efficiently a firm uses its assets in a timely manner. If the turnover ratio is high, this indicates a combination of conserve credit policy and aggressive collections department with a number of high-quality customers. Also, a low turnover ratio indicates an opportunity to collect excessively old accounts receivable that are unnecessary tying up working capital. Low receivable turnover can be caused by a loose credit policy, inadequate collections function and customers having financial difficulties. It is always advisable to tract accounts receivable turnover time by time to know if the turnover is slowly down and even increasing remuneration to the employees is required. Receivables turnover ratio can be calculated by dividing the net value of credit sales during a given period by the average accounts receivable during the same period. Average accounts receivable can be calculated by adding the value of accounts receivable at the beginning of the desired period to their value at the end of the period and dividing the sum by two. Account Receivable Turnover =

Net Credit Sales

Average Accounts Receivable The receivable turnover ratio can be used to track a firm’s accounts receivable time by time, also it may be use to compare accounts receivable turnover of multiple companies, and also, it can be used in the analysis of a prospective acquiree. When the ratio is excessively low, an acquirer can view this as an opportunity to apply more vigorous credit and collection practices, thereby reducing the working capital investment needed to run the business. References Steven Bragg. (2017). Accounts Receivable Turnover Ratio Calculation. Retrieved 30th May, 2018 from https://www.accountingtools.com/articles/2017/5/5/accounts-receivable-turnoverratio Investopedia. (2018). Receivables Turnover Ratio. Retrieved 31st May, 2018 from https://www.investopedia.com/terms/r/receivableturnoverratio.asp The method for calculating receivables turnover ratio can be represented with the following formula:...