Cromley Corporation reports annual sales of $1,800,000. Its accounts receivable throughout the year averaged $150,000. a. Compute the company’s accounts receivable turnover rate. b. Compute the average days outstanding of the company’s accounts receivable.

a. accounts receivable turnover rate is 12 times

b. Average days sales outstanding is 30 days

Explanation:

Computation of accounts receivable turnover rate

The accounts receivable turnover rate is determined by dividing the credit sales with the average receivables.

Credit Sales                     = $ 1,800,000

Average Receivables      = $    150,000

Receivables Turnover rate = $ 1,800,000/ $ 150,000 = 12 times

Computation of Average Days outstanding

Average days outstanding is computed by dividing the annual credit sales by 365 and using that as a divisor with the average receivables

Annual Credit Sales                     = $ 1,800,000

No of days                                                 365

Average daily credit sales  = $ 1,800.000/365 = $ 4,931.50

No of days sales = Average receivables/ Average daily credit sales

= $ 150,000/ $ 4,931.5 = 30.4 days rounded to 30 days

correct, but each time you dont pay the price of the penalty can increase.