[CPA2BEE]

Question: Is A/R Turnover calculated as Net Sales/Avg NET Receivables or Net Sales/Avg GROSS Receivables? The Becker book says it is Avg Net Rec but the NINJA MCQs have it as Avg Gross Rec. See the example problem from NINJA below, they use the Avg GROSS Receivables to come up with the correct answer:

For the fiscal year ending December 31, previous year and the current year, Justin Co. has net sales of $1,000,000 and $2,000,000; average gross receivables of $100,000 and $300,000; and allowance for uncollectible accounts receivable of $30,000 and $50,000, respectively. If the accounts receivable turnover and the ratio of allowance for uncollectible accounts receivable to gross accounts receivable are calculated, which of the following best represents the conclusions to be drawn?

A.

Accounts receivable turnovers are 10.0 and 6.6 and the ratios of uncollectible accounts receivable to gross accounts receivable are 0.30 and 0.16, respectively. Examine allowance for possible overstatement of the allowance.

Correct B.

Accounts receivable turnovers are 10.0 and 6.6 and the ratios of uncollectible accounts receivable to gross accounts receivable are 0.30 and 0.16, respectively. Examine allowance for possible understatement of the allowance.

C.

Accounts receivable turnovers are 14.3 and 8.0 and the ratios of uncollectible accounts receivable to gross accounts receivable is 0.42 and 0.20, respectively. Examine allowance for possible overstatement of the allowance.

D.

Accounts receivable turnovers are 14.3 and 8.0 and the ratios of uncollectible accounts receivable to gross accounts receivable are 0.42 and 0.20, respectively. Examine allowance for possible understatement of the allowance.

The ratio calculations are as follows:

Dec. 31, Dec. 31,

Formula Previous Year Current Year

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Accounts Net credit $1,000,000 / $2,000,000 /

receivable sales / Average $100,000 $300,000

turnover receivables = 10.0 = 6.6

Ratio of Allowance for $30,000 / $50,000 /

allowance for uncollectible $100,000 $300,000

uncollectible A/R / Avg. gross = .30 = .16

accounts receivables

receivable to

gross accounts

receivable

Does anyone know for certain what it is???

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