Question

Compute Debtors Turnover Ratio and Average Collection Period from the following: Net Credit Sale 27,00,000 Debtors 4,20,000 Bills Receivable 30,000​

Answer 1

ANSWER :

• ❖ If Net Credit Sale is Rs. 27,00,000; Debtors is Rs. 4,20,000 and Bills Receivable is Rs. 30,000; then Debtors Turnover Ratio will be 12 times and Average Collection Period will be 30 days (approx).

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SOLUTION :

❒ Given :-

• Net Credit Sale = Rs. 27,00,000

• Debtors = Rs. 4,20,000

• Bills Receivable = Rs. 30,000

❒ To Calculate :-

• Debtors Turnover Ratio = ?

• Average Collection Period = ?

❒ Required Formulas :-

• $\dag \: \: \underline{ \boxed{ \sf{ \: Debtors \: \: Turnover \: \: Ratio = \dfrac{ Net \: \: Credit \: \: Sales}{ Average \: \: Trade \: \: Receivable } \: }}}$

• $\dag \: \: \underline{ \boxed{ \sf{ \: Average \: \: Collection \: \: Period = \dfrac{365 \: \: days}{Accounts \: \: Receivable \: \: Turnover \: \: Ratio} \: }}}$

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❒ Calculation of Debtors Turnover Ratio :-

It is given that,

• Debtors = Rs. 4,20,000

• Bills Receivable = Rs. 30,000

So,

• ✠ Average Trade Receivable = $\rm{\dfrac{Rs. \: 4,20,000 + Rs. \: 30,000}{2}}$

➨ Average Trade Receivable = $\rm{\dfrac{Rs. \: 4,50,000}{2}}$

➨ Average Trade Receivable = Rs. 2,25,000

Here,

• Net Credit Sales = Rs. 27,00,000

• Average Trade Receivable = Rs. 2,25,000

Using the formula of Debtors Turnover Ratio, we get,

• $\bigstar \: \: \tt{Debtors \: \: Turnover \: \: Ratio = \dfrac{ Net \: \: Credit \: \: Sales}{ Average \: \: Trade \: \: Receivable}}$

$\longrightarrow \: \tt{Debtors \: \: Turnover \: \: Ratio = \dfrac{Rs. \: 27,00,000}{Rs. \: 2,25,000}}$

$\therefore \: \tt{Debtors \: \: Turnover \: \: Ratio = \underline{12 \: \: times}}$

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❒ Calculation of Average Collection Period :-

We have,

• Debtors Turnover Ratio = 12 times

So,

• ✠ Accounts Receivable Turnover Ratio = Debtors Turnover Ratio

➨ Accounts Receivable Turnover Ratio = 12 times

Using the formula of Average Collection Period, we get,

• $\bigstar \: \: \tt{Average \: \: Collection \: \: Period = \dfrac{365 \: \: days}{ Accounts \: \: Receivable \: \: Turnover \: \: Ratio}}$

$\longrightarrow \: \tt{Average \: \: Collection \: \: Period = \dfrac{365\: \: days}{12 \: \: times}}$

$\therefore \: \tt{Average \: \: Collection \: \: Period = 30. 41 \: \: days}$

$\therefore \: \tt{Average \: \: Collection \: \: Period = \underline{30\: \: days} \: (approx.)}$

Answer 2

debtors turnover ratio= net credit sales/ avg debtors + B/R

= 27,00,000/4,20,000+30,000

=27,00,000/4,50,000

=6 times

avg collection period= avg debtors + B/R / net credit sales×365

= 4,20,000+30,000/27,00,000×365

=4,50,000/27,00,000×365

=6.08 or 61 days