Question

Information follows for Carra Company: 1. The beginning-of-the-year Accounts Receivable balance was $25,000. 2. Net sales for the year were $410,000. (Credit sales were $200,000 of the total sales.) Carra does not offer cash discounts. 3. Collections on accounts receivable during the year were $140,000. Required: (a) Prepare summary journal entries to record the items noted above. (b) Calculate Carra Company's accounts receivable turnover ratio for the year. How old is the average receivable in days? (c) Use the turnover ratio calculated in part (b) to analyze Carra Company's liquidity. The turnover ratio last year was 4.85. Formulas: Accounts Receivable Turnover Ratio = net credit sales ÷ average accounts receivable at net Age of the average receivable in days = 365 days ÷ accounts receivable turnover ratio

Answer 1

Journal entry

Transaction	Accounts titles and explination	Debit	Credit
1.	No entry is required
2.	Accounts receivable	$200,000
	Sales		$200,000
3.	Cash	$140,000
	Accounts receivable		$140,000

2.

Accounts receivable turnover = sales/ Average receivables

Accounts receivable =$25,000+$200,000-$140,000

=$85,000

Average Accounts receivable =($25,000+$85,000)/2=$55,000

Accounts receivable turnover=$200,000/$55,000

=3.64

Days to collect Accounts receivable =365/3.64 =100.27 day's