LESSON 7 3 Accounts Receivable Turnover Ratio Accounts

LESSON 7 -3 Accounts Receivable Turnover Ratio Accounts receivable turnover ratio Average number of days for payment CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

2 Chapter 7 Objectives Accounting for Uncollectible Accounts After studying Chapter 7, you will be able to: n Define accounting terms related to uncollectible accounts. n Identify accounting concepts and practices related to uncollectible accounts. n Calculate and record estimated uncollectible accounts expense using the direct write-off method. n Calculate and record estimated uncollectible accounts expense using the allowance method. n Calculate and analyze accounts receivable turnover ratios. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 7 -2

3 Lesson 7 -3 n accounts receivable turnover ratio: the number of times the average amount of accounts receivable is collected during a specified period n book value of accounts receivable: the difference between the balance of accounts receivable and its contra account, allowance for uncollectible accounts CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 7 -3

4 CALCULATING THE ACCOUNTS RECEIVABLE TURNOVER RATIO 1 page 211 Compute the beginning and ending book value. – Allowance for Uncollectible Accounts = Book Value of Accounts Receivable $50, 329. 14 – $1, 416. 83 = $48, 912. 31 $45, 462. 79 – $1, 363. 88 = $44, 098. 91 Total Accounts Receivable Beginning Ending CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 7 -3

5 CALCULATING THE ACCOUNTS RECEIVABLE TURNOVER RATIO 2 page 211 Compute the average book value. Beginning Book Value of Accounts Receivable ($48, 912. 31 + Ending Book Value of Accounts Receivable 2 = Average Book Value of Accounts Receivable + $44, 098. 91) 2 = $46, 505. 61 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 7 -3

6 CALCULATING THE ACCOUNTS RECEIVABLE TURNOVER RATIO 3 page 211 Compute the accounts receivable turnover. Net Sales on Account $330, 312. 85 Average Book Value of Accounts Receivable = Accounts Receivable Turnover Ratio $46, 505. 61 = 7. 1 times CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 7 -3

7 CALCULATING THE ACCOUNTS RECEIVABLE TURNOVER RATIO 4 page 211 Compute the average number of days for payment. Days in Year 365 Accounts Receivable Turnover Ratio = Average Number of Days for Payment 7. 1 = 51 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 7 -3

8 ANALYZING ACCOUNTS RECEIVABLE TURNOVER RATIOS CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning page 212 LESSON 7 -3

9 DEFINE TERMS REVIEW In Quizlet page 213 Edit this set: Chapter 7 Adv. Acc (then SAVE) n accounts receivable turnover ratio n book value of accounts receivable CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 7 -3

10 Exit Ticket for today: Audit Your Understanding 7 -3 In a Word Document, Save. AS: Chapter 7 -3 AYUYour. Name And drop in my Inbox today! 1. What is the formula for calculating the accounts receivable turnover ratio? 2. How would you interpret the situation of a business that desires an accounts receivable turnover ratio of 12. 0 times but actually has a turnover ratio of 6. 0 times. 3. How can extremely restrictive credit terms have a negative impact on a business? CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 7 -3

11 Complete the following assignments for Chapter 7 -3 today n Define Terms Review on page 213. n Answer Audit Your Understanding questions on page 213. n Complete Work Together 7 -3 on Aplia – page 213. n Complete On Your Own 7 -3 on Aplia – page 213. n Complete Application Problem 7 -5 on Aplia – page 216. n Complete Application Problem 7 -6 on Aplia – page 217. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 7 -3