The receivable turnover can be calculated by which of the following formula:

Question

Options

• AReceivable turnover = Net Sales on Account / Average Net Receivables
• BReceivable turnover = Gross Sales on Account / Average Gross Receivables
• CReceivable turnover = Net Sales on Receivables / Average Net Account
• DReceivable turnover = Gross Sales on Receivables / Average Gross Account

• A
  81% (30)
• B
  5% (2)
• C
  11% (4)
• D
  3% (1)

Explanation

Option A is correct because receivable turnover measures how efficiently a company collects credit sales, calculated as Net Sales on Account (credit sales only, net of returns/allowances) divided by Average Net Receivables (net of allowance for doubtful accounts) - both figures are "net" to reflect realistic, collectible amounts.

Why the distractors fail:

• B uses gross figures for both terms - gross receivables inflate the denominator by ignoring uncollectible amounts, distorting the efficiency measure.
• C swaps the words ("Sales on Receivables" and "Net Account") - these aren't standard accounting terms; the correct phrasing is "Sales on Account" (credit sales) and "Net Receivables."
• D combines the same word-swap error from C with gross figures from B - doubly wrong in both terminology and measurement basis.

Memory tip: Think "Net over Net" - both the numerator and denominator must be net figures, and you're measuring sales made on account (credit) relative to what you're owed (receivables). If an answer uses "gross" or scrambles "account" and "receivables," eliminate it immediately.

No community discussion yet for this question.