PRESENTATION OF ACCOUNTS RECEIVABLE

1. Allowance for doubtful accounts is subtracted from accounts receivable.

2. Allowance for doubtful accounts is a contra-asset account.

ACCOUNTS RECEIVABLE TURNOVER RATIO

1. Accounts receivable turnover ratio = Credit sales / Average accounts receivable

2. Days in accounts receivable (Average collection period)

                = 365 days / Accounts receivable turnover ratio

Exercise

Credit sales = $170,000

Beginning accounts receivable = $19,000

Ending accounts receivable = $21,000

Calculate the following:

        (1) Accounts receivable turnover ratio

        (2) Days in accounts receivable (Average collection period)

        

        Average accounts receivable

        = (Beginning accounts receivable + Ending accounts receivable) / 2

        = ($19,000 + $21,000) / 2 = $20,000

        (1) Accounts receivable turnover ratio

                = $170,000 / $20,000 = 8.5

        (2) Days in accounts receivable (Average collection period)

                = 365 days / 8.5 = 42.94