Introduction to Financial Accounting

Chapter 7
Cash and Receivables

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 Chapter 7 Learning Objectives
LO1 – Define and Explain Internal Control Over Cash

LO2 – Explain Petty Cash Transactions

LO3 – Bank Reconciliations and Adjusting Entries

LO4 – Estimated Uncollectible Accounts, Write-offs and Recoveries

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 Chapter 7 Learning Objectives

LO5 – Short-term Notes Receivable and Interest

LO 6 – Acid-test Ratio

LO 7 – Accounts Receivable Turnover Ratio

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 Cash and Receivables
LO1 – Define and Explain Internal Control Over Cash

• The policies and procedures implemented by

management to protect assets are collectively referred
to as internal controls:
– These not only protect, they also:
• Aid in ensuring accounting records are accurate.
• Promote the timely preparation of financial
statements.
• Ensure compliance with laws and regulations.
• Promote efficient operations.
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 Internal Controls
• Whether accounting records are electronic or not,
effective internal controls:
– Ensure that adequate accounting records are maintained.
– Transactions are authorized.
– Duties of employees are divided between recordkeeping
and control of assets, as well as their work being checked
by others.
• Effectiveness of internal controls are limited by:
– Human error
– Fraud

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 Internal Controls
• Examples of internal controls:
– Mandatory drug testing,
– Video surveillance,
– Scrutiny of company emails,
– Procedural controls applied to a company’s accounting
system to ensure efficiency, accuracy, reliability, and
timeliness.

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 Internal Controls

• Good internal controls for accounting include:

– Internal controls are to be well-documented.
– Employees are trained in the application of internal
controls.
– Implementing a chart of accounts which aids in the
production of timely and useful financial information.
– Financial data from transactions should be prepared and
recorded as soon as possible.
– Financial documents such as invoices and receipts should
be consecutively pre-numbered to easily spot missing
documents.

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 Internal Controls
• Good internal controls for cash include:
– Ensuring adequate procedures for protecting cash receipts
and cash payments. These vary among different
companies depending on size, number of employees, and
cash sources. These include:
• Separation of duties of cash recordkeeping from the
physical handling of cash.
• Same-day deposits to prevent opportunities for theft.
• Payments by cheque or electronic funds transfer (EFT)
to provide a verifiable external record of the payment.

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 Internal Controls
• Forms of internal control over cash are:
– Use of a petty cash account.
– Preparation of bank reconciliations.
– Use of debit and credit cards as methods of
payment from customers for sales transactions.

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 Cash and Receivables

LO2 – Explain and Journalize Petty Cash Transactions

• A petty cash fund is a small amount of cash, kept

on hand to reimburse individuals for small,
infrequent expenses paid for on behalf of the
company. It is kept in a locked box which is
accessible only by the petty cash custodian, who
is held accountable for the fund.

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 Petty Cash

• Step 1: A cheque is prepared for the amount of the

petty cash fund, which is cashed by the petty cash
custodian to initiate the fund.
– Example: a $200 cheque is issued to establish a petty cash
fund:
General Journal
Date Account/Explanation F Debit Credit
Jan. 1 Petty Cash 200
Cash 200
To establish the $200 petty cash fund.

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 Petty Cash
• Step 2: Periodically, the petty cash must be
reconciled and replenished:

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 Petty Cash
• At times, the petty cash fund may not balance
properly.

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 Petty Cash
• The petty cash fund can also be increased, but care
should be taken to ensure that the petty cash fund
does not become too large, increasing the risk of
theft.
• Consider that the fund should only be for
reimbursements of infrequent types of expenses, not
for day-to-day items.

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 Cash and Receivables

LO3 – Bank Reconciliations and Adjusting Entries

• The involvement of banks as financial

intermediaries for deposits and cheques provides a
safeguard for any cash assets being exchanged.

• It is typical for there to be a temporary differences

between the bank statement issued monthly by the
bank, and the cash balance in the company’s
general ledger as at the same date.

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 Bank Reconciliation
• These temporary differences can be due to:
– outstanding cheques and deposits recorded by the
company but not yet posted to the bank account.
– Errors in cheque or deposit amounts in either the
company’s accounting records or in the bank statement.
– Items posted to the bank account that have not yet
been recorded to the company’s cash account in the
accounting records:
• Bank service changes,
• Collections of notes receivable on behalf of the company,
• NSF cheques written by others on accounts with
insufficient funds, are now being deducted by the bank.
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 Bank Reconciliation
• The bank reconciliation process is one method of
ensuring internal control over cash because it can
explain the differences (called discrepancies, or
reconciling items) between the cash balance
reported in the company’s “books” and the cash
balance in the bank statement, on a given date.
• A bank reconciliation proves the accuracy of both the
company’s cash records and the bank’s records, and
reveals any errors made by either the company or
the bank. This process can also help detect theft or
manipulation of records.
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 Bank Reconciliation
• The completed bank reconciliation report appears as follows:
Big Dog Carworks Corp.
Bank Reconciliation
At April 30, 2015
Book balance at Apr. 30 $21,929 Bank statement balance at Apr. 30 $24,023
Add: Outstanding deposit 1,000
Cheque deducted in error 31
25,054
Less: Bank charges $6 Less: Outstanding cheques
NFS Cheque – J. Donne 180 186 Cheque No. Amount
606 $ 287
607 1,364
608 100
609 40
610 1,520 3,311
Adjusted book balance at Apr. 30 $21,743 Adjusted bank balance at Apr. 30 $21,743

These balances must agree.

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 Bank Reconciliation
• Step-by-step process: the objective is to ensure that every item
on the bank statement is accounted for in the cash records of
the company’s books, and every cash item recorded in the cash
account has also been posted to the bank statement.
• Step 1: List the ending cash balance from the accounting records
as at April 30, 2015 on the book balance side of the report.

• Step 2: List the ending bank balance from the bank statement as
at April 30, 2015 on the bank side of the report.

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 Bank Reconciliation
• Step 3: Using the previous month’s bank
reconciliation report for March 31, check off any
outstanding cheques listed in that reconciliation with
the cheques in the bank statement.
Second Charter Bank
Outstanding cheques at Bank Statement
March 31: for Big Dog Carworks Corp.
Cheque No. Amount For the Month Ended April 30, 2015
580 $4,051 Cheques Charges Debits Deposits/ Balance
599 196 Credits
600 7 24,927
4,051 1,570 22,446
196 24 230 390 22,386
200 22,186
124 397 7 21,658
2,220 180NSF 5,000 24,258
1,720 31 1,522 24,029
6 S/C 24,023

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• Step 3 Cont’d: Using the current month’s accounting
records, check off any cheques recorded with the
cheques listed in the bank statement.
Cheques written during the
month of April:
Cheque No. Amount
601 $ 24 Second Charter Bank
602 1,720 Bank Statement
603 230 for Big Dog Carworks Corp.
For the Month Ended April 30, 2015
604 200 Cheques Charges Debits Deposits/ Balance
605 2,220 Credits
606 287 24,927
607 1,364 4,051 1,570 22,446
608 100 O/S 196 24 230 390 22,386
200 22,186
609 40 Cheques 124 397 7 21,658
610 1,520 $3,311 2,220 180NSF 5,000 24,258
611 124 1,720 31 1,522 24,029
612 397 6 S/C 24,023
$8,226

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Step 3 Cont’d: List the outstanding cheques and deduct them
from the bank statement side of the reconciliation.

Big Dog Carworks Corp.

Bank Reconciliation
At April 30, 2015
Book balance at Apr. 30 $21,929 Bank statement balance at Apr. 30 $24,023

Less: Outstanding cheques

Cheque No. Amount
606 $ 287 O/S
607 1,364 Cheques
608 100 $3,311
609 40
610 1,520 3,311

Consider that the O/S cheques were already deducted from the book
balance (left side), but are net yet deducted from the bank statement (right
side). For both sides to balance, they must therefore be deducted from
the bank side as shown above.
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• Step 4: Examine the bank statement for any other
charges. Included is an NSF cheque from a customer,
J. Donne, for $180, bank service charges for $6 and
an unknown charge for $31. The bank confirmed
that the $31 was another company’s cheque
Second Charter Bank
deducted in error. Bank Statement
for Big Dog Carworks Corp.
For the Month Ended April 30, 2015
The company’s books Cheques Charges Debits Deposits/ Balance
Credits
have not recorded the 4,051 1,570
24,927
22,446
NSF cheque deduction or 196
200
24 230 390 22,386
22,186
the bank service charges, 124
2,220
397
180NSF
7
5,000
21,658
24,258
so these are deducted 1,720
6 S/C
31 1,522 24,029
24,023
from the book balance
side of the reconciliation
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Step 4 Cont’d: Since the NSF cheque for $180 and the bank service
charges for $6 are not yet included in the company books, they are
deducted from the book balance side of the reconciliation.
Big Dog Carworks Corp.
Bank Reconciliation
At April 30, 2015
Book balance at Apr. 30 $21,929 Bank statement balance at Apr. 30 $24,023
Add: 1,000
Cheque deducted in error 31

Less: Outstanding cheques

Less: Bank charges $6 Cheque No. Amount
NFS Cheque – J. Donne 180 186 606 $ 287
607 1,364
608 100
609 40
610 1,520 3,311

The deduction of $31 is the bank’s error, so it is added

back to the bank statement side (this is step 7 in the text).
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• Step 5: Using the previous month’s bank
reconciliation report for March 31, check off any
outstanding deposits listed in that reconciliation with
the deposits in the bank statement. There were no
O/S deposits from
Second Charter Bank
March 31. Bank Statement
for Big Dog Carworks Corp.
For the Month Ended April 30, 2015
Cheques Charges Debits Deposits/ Balance
Credits
24,927
4,051 1,570 22,446
196 24 230 390 22,386
200 22,186
124 397 7 21,658
2,220 180NSF 5,000 24,258
1,720 31 1,522 24,029
6 S/C 24,023

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• Step 6: Using the current month’s accounting
records, check off any deposits recorded with the
deposits listed in the bank statement.

Deposits made for the

month of April: Second Charter Bank
Date Amount Bank Statement
April 5 $1,570 for Big Dog Carworks Corp.
10 390 For the Month Ended April 30, 2015
Cheques Charges Debits Deposits/ Balance
23 5,000 Credits
28 1,522 24,927
30 1,000 O/S Deposit 4,051 1,570 22,446
$9,482 196 24 230 390 22,386
200 22,186
124 397 7 21,658
2,220 180NSF 5,000 24,258
1,720 31 1,522 24,029
6 S/C 24,023

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• Step 6 Cont’d: The outstanding deposit was already included
in the book balance, so it is now added to the bank statement
side of the reconciliation.
Big Dog Carworks Corp.
Bank Reconciliation
At April 30, 2015
Book balance at Apr. 30 $21,929 Bank statement balance at Apr. 30 $24,023
Add: Outstanding deposit 1,000
Cheque deducted in error 31

Less: Bank charges $6 Less: Outstanding cheques

NFS Cheque – J. Donne 180 186 Cheque No. Amount
606 $ 287
607 1,364
608 100
609 40
610 1,520 3,311

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Step 7: Bank error – (was already entered as part of step 4.)

Big Dog Carworks Corp.

Bank Reconciliation
At April 30, 2015
Book balance at Apr. 30 $21,929 Bank statement balance at Apr. 30 $24,023
Add: Outstanding deposit 1,000
Cheque deducted in error 31
25,054
Less: Bank charges $6 Less: Outstanding cheques
NFS Cheque – J. Donne 180 186 Cheque No. Amount
606 $ 287
607 1,364
608 100
609 40
610 1,520 3,311

Adjusted book balance at Apr. 30 $21,743 Adjusted bank balance at Apr. 30 $21,743

Step 8: Total both sides of the reconciliation. Bothagree.

These balances must sides
must be equal to properly reconcile.
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Step 9: An adjusting entry must be done to record the missing
transactions on the books side of the reconciliation.
Big Dog Carworks Corp.
Bank Reconciliation
At April 30, 2015
Book balance at Apr. 30 $21,929 Bank statement balance at Apr. 30 $24,023
Add: Outstanding deposit 1,000
Cheque deducted in error 31
25,054
Less: Bank charges $6 Less: Outstanding cheques
NFS Cheque – J. Donne 180 186 Cheque No. Amount
606 $ 287
607 1,364
608 100
609 40
610 1,520 3,311
Adjusted book balance at Apr. 30 $21,743 Adjusted bank balance at Apr. 30 $21,743

Note: No adjusting entry is done for the reconciling items

from the bank statement side. This makes intuitive sense.
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 Bank Reconciliation
– The custodian receives General Journal
the reimbursement cheque in
Date exchange forAccount/Explanation
the paid receipts and a copy ofF the
Debit Credit
Jan. 1 reconciliation report.
Accounts Receivable, The cheque and cashed and
J. Donne 180the
Bank Service
proceeds areCharges
used toExpense
replenish the fund. 6
Cash 186
To record the NSF cheque and the bank s/c
from April 30 bank reconciliation.

– Once this adjusting entry is posted to the general ledger,

the cash account balance is up to date and agrees with the
bank reconciliation $21,929 - $186 = $21,743.

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 Debit and Credit Card Transactions
• The debit/credit card companies deposit the cash from
these sales into the company’s bank account, less the fee,
enhancing the company’s internal controls over cash.
• For example, a credit card sale for $1,000 where the credit
card company charges a 2% fee, and the cost of goods sold
is $750, results in the following entry:
General Journal
Date Account/Explanation F Debit Credit
Jan. 1 Cash 980
Credit Card Expense 20
Cost of Goods Sold 750
Sales 1,000
Merchandise Inventory 750
To record sale, related fee and cost of sales.

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 Cash and Receivables
LO4 – Estimated Uncollectible Accounts, Write-offs and Recoveries

• Accounts receivable begins with a credit sale (on

account) to a credit-worthy customer, and is
completed with the collection of cash.

• Not all receivables are collected, so estimates of

uncollectible accounts (bad debts) are to be
calculated and recorded as an expense
associated with selling on credit.

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 Uncollectible Accounts
• Bad debt expense must be matched to the credit sales
of the same period. A process of estimating the
amount of credit sales that will not be collected is
explained below.
• An allowance account, called an Allowance for Doubtful
Accounts (AFDA), is established to record estimated
uncollectible receivables followed by an adjusting entry,
usually at the end of each reporting period.
• This account is a contra account to accounts receivable,
and is disclosed in the balance sheet as illustrated:

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 Uncollectible Accounts

Accounts receivable $25,000

Less: Allowance for doubtful accounts 1,400 23,600
OR

Accounts receivable (net of $1,400 AFDA) $23,600

• The AFDA account reduces the accounts receivable

to the amount that is expected to be collected, or
$23,600.

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 Uncollectible Accounts
• Bad debts are accounted for using the allowance
approach (the AFDA account is an allowance
account). This is applied using either the income
statement method or the balance sheet method.
• The Income Statement Method: Bad debts are
estimated based on applying an estimated loss
percentage to credit sales for the period. The
percentage is often based on actual losses from prior
years.
• Next, is some historical data:

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 Uncollectible Accounts
Amounts
Credit Not
Year Sales Collected
2012 $150,000 $1,000
2013 200,000 1,200
2014 250,000 800
$600,000 $3,000

• The average loss over three years is $3,000/$600,000 or ½

of 1%, or .5%. If 2015 credit sales is $300,000, then the
estimated bad debt expense would be $1,500 ($300,000
X .005).
• The income statement method gives no consideration to
any existing balance in the AFDA account.

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 Uncollectible Accounts
• The adjusting entry for 2015 would be:

General Journal
Date Account/Explanation F Debit Credit
Dec. Bad Debt Expense 1,500
31 Allowance for Doubtful Accounts 1,500
To record the adjustment estimating bad debt
expense.

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 Uncollectible Accounts
General Journal
Date Account/Explanation F Debit Credit
Bad Debt Expense 1,500
Allowance for Doubtful Accounts 1,500
To record the adjustment estimating bad debt
expense.

AFDA account before AFDA account after

posting adjustment posting adjustment
Allowance for Doubtful Accounts Allowance for Doubtful Accounts
Bal. 250 Bal. 250
Adjustment 1,500
Adjusted
Bal. 1,750

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 Uncollectible Accounts
• The Balance Sheet Method: Estimated bad debts are
based on applying various estimated loss
percentages to accounts receivable that are aged, or
grouped into categories, based on the number of
days unpaid. The categories with higher number of
days not paid are assigned a higher percentage,
based on the higher risk of not being collected.
• An example of an aged accounts receivable follows:

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 Uncollectible Accounts
Aging of Accounts Receivable
December 31, 2015
Number of Days Past Due
Not Yet
Customer Total Due 1-30 31-60 61-90 91-120 Over 120
Bendix Inc. $ 1,000 $1,000
Devco Marketing Inc. 6,000 $ 1,000 $3,000 $2,000
Horngren Corp 4,000 2,000 1,000 $1,000
Perry Co. Ltd. 5,000 3,000 1,000 1,000
Others 9,000 4,000 5,000
Totals $25,000 $10,000 $5,000 $2,000 7,000 $1,000

Number of Days Not Yet 1-30 31-60 61-90 91-120 Over

Oustanding Due 120
Rate of Uncollectability 0.5% 1% 3% 5% 10% 40%

• Percentages are assigned based on past experience. As risk of not

being collected increases, so do the percentages.
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 Uncollectible Accounts
Calculation of Uncollectible Amounts
December 31, 2015
Estimated Estimated
Age Accounts Bad Debt Uncollectible
(days) Receivable Percentage Amount The
1-30 $10,000 1% $100 percentages
31.60 5,000 3% 150 are applied
61-90 2,000 5% 100
91-120 7,000 10% 700 to each A/R
Over 120 1,000 40% 400 category and
Totals $25,000 $1,450 totalled.

The balance
The total estimated
remaining in the
uncollectible
account is $250 from
previous period.
receivables is $1,450. The total of
$1,450 must
Allowance for Doubtful Allowance for Doubtful now be the
Accounts Accounts
Bal. 250 Bal. 250 ending
balance for
the AFDA
Bal. 1,450 account

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 Uncollectible Accounts

Allowance for Doubtful

Accounts
Bal. 250
X =X$1,200
= ??
Bal. 1,450

Adjusting entry must therefore be for $1,200

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 Uncollectible Accounts
• The adjusting entry for 2015 would be:
General Journal
Date Account/Explanation F Debit Credit
Dec. Bad Debt Expense 1,200
31 Allowance for Doubtful Accounts 1,200
To record the adjustment estimating bad debt
expense.

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 Uncollectible Accounts
• A simplified balance sheet method would be to apply
a single percentage to the ending accounts
receivable balance.
• For example, if the AFDA account unadjusted balance
was $250 credit, and the accounts receivable balance
was $25,000 as before, if the estimated loss
percentage was 6% of accounts receivable, the AFDA
ending balance would be $1,500 ($25,000 X 6%), and
the adjusting entry amount would be:
$250 AFDA unadjusted balance – $1,500 = $1,250

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 Uncollectible Accounts
• The adjusting entry for 2015 would be:
General Journal
Date Account/Explanation F Debit Credit
Dec. Bad Debt Expense 1,250
31 Allowance for Doubtful Accounts 1,250
To record the adjustment estimating bad debt
expense.

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 Uncollectible Accounts
• Writing Off an Uncollectible Account: When
management determines that a specific account
receivable is not collectible, it must be removed
from the accounts and is known as a write-off.
• For example, on January 15, 2016, the $1,000
account receivable for Bendix Inc. illustrated
earlier is deemed to be uncollectible by
management. The entry to remove the account
from the books:

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 Uncollectible Accounts
• The adjusting entry for 2015 would be:
General Journal
Date Account/Explanation F Debit Credit
Jan. Allowance for Doubtful Accounts 1,000
15 Accounts Receivable – Bendix Inc. 1,000
To record the write-off of Bendix Inc.’s account
receivable as uncollectible.

• Since these two accounts net together on the

balance sheet, it follows that there is no change
in the net accounts receivable balance reported.
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 Uncollectible Accounts
• If the AFDA account unadjusted opening balance
was $250 credit as before, after the write-off, this
account will be in a temporary debit balance. If
the balance sheet method is used to estimate bad
debt expense, the adjusting entry amount will also
change.
• For example, assume a $250 credit balance in the
AFDA account, and $1,000 written-off. At the end
of the period, a 6% loss percentage is applied to
the $25,000 accounts receivable balance, resulting
in an AFDA ending balance requirement of $1,500.
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 Uncollectible Accounts
• The AFDA unadjusted balance after the write-off is
currently $750:
AFDA
Debit Credit
250
write-off 1,000
Subtotal 750

2,250
1,500

• To adjust the AFDA to balance to the current

balance requirement of $1,500, the adjustment
amount must be $2,250 as illustrated above.
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 Uncollectible Accounts
• Subsequent Recovery of a Write-Off: If Bendix Inc.
subsequently paid $500 of the $1,000 account
written-off, the entry would be a two-step one:
General Journal
Date Account/Explanation F Debit Credit
Accounts Receivable – Bendix Inc. 500
AFDA 500
To re-establish a portion of the A/R for Bendix.
Cash 500
Accounts Receivable – Bendix Inc. 500
To record the partial payment of an account
previously written-off.

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 Cash and Receivables
LO5 – Short-term Notes Receivable and Interest

• A short-term note receivable is a signed

document, called a promissory note, where the
debtor (person who owes the money) promises
to pay the creditor, principal and interest on the
due/maturity date, which is typically less than 12
months.
• Interest is calculated as:
Principal X Annual Interest Rate X Time

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 Short-Term Receivables
• Short-term notes receivable are disclosed as a
current asset on the balance sheet.
• Notes receivable are often used to replace an
overdue accounts receivable to a more formal
arrangement where terms are specified.
• For example, assume that Perry Co. Ltd. is unable to
pay its $5,000 account within the normal 30-day
period. The account receivable is converted to a 5%,
60-day note dated December 5, 2015. The entry will
be:

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 Short-Term Receivables
General Journal
Date Account/Explanation F Debit Credit
Dec. 5 Notes Receivable – Perry Co. 5,000
Accounts Receivable – Perry Co. 5,000
To record the conversion of an account
receivable to a 5%, 60-day note dated Dec. 5,
2015.

The note is due on February 3, 2016 calculated as:

Days in December 31
Less: December 5 date of the note 5
Subtotal number of days 26
Add: Days in January 31
Subtotal number of days 57
Add: Days in February to total 60 days 3
Total term of the note in days 60

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 Short-Term Receivables
• If the year-end was December 31, the adjusting
entry for accrued interest would be:
$5,000 X 5% X 26/365 = $17.81

General Journal
Date Account/Explanation F Debit Credit
Dec. Interest Receivable 17.81
31 Interest Revenue 17.81
To record the accrual of interest from Dec. 5 –
31.

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 Short-Term Receivables
• At maturity, on February 3, 2016, the entry to collect the
principal and interest of the note would be:

General Journal
Date Account/Explanation F Debit Credit
Feb. 3 Cash 5,041.10
Note Receivable 5,000.00
Interest Receivable (previously accrued) 17.81
Interest Revenue 23.29
To record the collection of the principal
and interest.

The total interest realized on the note would be:

$5,000 X 5% X 60/365 = $41.10 (rounded). Since $17.81 was
previously accrued, $23.29 revenue is recorded as revenue
from Jan. 1 to Feb. 3, 2016.
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 Short-Term Receivables
• If the term of the note was 2 months, instead of 60-days,
the entry at collection, assuming the year-end was July 31
(no accrual recorded), would be:
General Journal
Date Account/Explanation F Debit Credit
Feb. 5 Cash 5,041.67
Note Receivable 5,000.00
Interest Revenue 41.67
To record the collection of the principal
and interest.

The total interest realized on the note over the 2 months:

$5,000 X 5% X 2/12 = $41.67 (rounded).

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 Cash and Receivables
LO 6 – Acid-test Ratio

• An acid-test ratio, also known as the quick ratio, is

a liquidity ratio that measures the company’s
ability to pay its current liabilities as they come
due.
• The numerator excludes assets that are not one-
step away from cash, such as inventory or prepaid
expenses.
• Quick current assets include cash, short-term
investments, and receivables.
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 Acid-Test Ratio
• The acid-test ratio is calculated as:
Cash + short-term investments + receivables
Current liabilities
• The acid-test ratios for three companies are shown
below: Acid-Test Ratios
Year Company A Company B Company C
2014 0.56 1.3 8.6
2015 0.72 1.2 8.7

Company A has a liquidity issue, but it did improve in

2015. Company B has a favourable ratio, but it does drop
slightly in 2015. Company C’s ratio is too high, indicating
that its working capital is not being put to its best use.
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 Cash and Receivables
LO 7 – Accounts Receivable Turnover Ratio

• This ratio measures both the liquidity of the

receivables and the efficiency of collection (turnover
into cash).
• The ratio is calculated as:
Net sales ÷ Average accounts receivable*
• The average is calculated by the beginning + ending
balance, divided by 2.
• Usually, the higher the sales or the lower the A/R in
this ratio, the better.
* Includes short-term notes receivable from customers.
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 Accounts Receivable Turnover Ratio
• The A/R turnover ratios for two companies from a
similar industry are shown below:
Accounts Receivable Turnover
Year Company A Company B
2015 5.8 6.9

• Company B has the higher ratio, so it is more

efficient at collecting its receivables than is
Company A.

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 References
All clip-art was retrieved from http://openclipart.org on
Aug 31, 2016.

Red X on various slides : https://openclipart.org/detail/169757/check-and-cross-marks

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