Transactions' Influence on Ratios
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The president of Castle Enterprises Ltd., Nicole Castle, is considering the impact that certain transactions have on its receivables turnover and average collection period ratios. Prior to the following transactions, Castle's receivables turnover was 6 times, and its average collection period was 61 days.
Transaction Receivables Average
Turnover (6x) Collection
Period 61
days
1. Recorded sales on account $100,000
2. Collected $25,000 owing from customers.
3. Recorded bad debts expense for the year
$7,500, using the allowance method.
4. Recorded sales returns of $1,500 and
credited the customers' account.
5. Wrote off a $2,500 account from a
customer as uncollectible.
Complete the table, indicating whether each transaction will increase, decrease, or have no effect on the ratios.
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Solution Summary
Solution explains the impact of given transactions on a company's financial ratios with detailed calculations.
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The president of Castle Enterprises Ltd., Nicole Castle, is considering the impact that certain transactions have on its receivables turnover and average collection period ratios. Prior to the following transactions, Castle's receivables turnover was 6 times, and its average collection period was 61 days.
Transaction Receivables Average
Turnover (6x) Collection
Period 61
Days
Receivable turnover ratio= Net Credits Sales/ Average ...
Purchase this Solution
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