State the debtors turnover ratio, Managerial Accounting

Assignment Help:

Debtors turnover ratio( or receivables turnover ratio)

Meaning: this ratio establishes a relation ship between net credit sales and averages trade debtors.

 

Objective: the objective of computing this ratio is to verify the efficiency with which the trade debtors are managed.

 

Components: There are two components of this ratio which are as under:

           Net credit sales

           Average trade debtors

 Computation: this ratio is computed by dividing the net credit sales by average trade debtors. This ratio is usually expressed as x number of times. In the form of a formula this ratio may be expressed as under:

Net credit sales = gross credit sales -sales returns

Interpretation: it shows the number of times the debtors are turned over during a year. Generally the higher the value of debtors' turnover the more efficient is the management of debtors or more liquid is the debtors. Similarly low debtor's turnover implies inefficient management of debtors/sales and less liquid debtors a very high ratio may imply a firm inability due to lack of resources to sell on credit there by losing sales and profits. There is no rule of thumb which may be used as a norm to interpret the ratio as it may be different form firm to firm depending upon the nature of business. This ratio should be compared with ratio of other firm doing similar business and a trend may also be found to make a better interpretation of the ratio.

 


Related Discussions:- State the debtors turnover ratio

Breakeven analysis, I am part of a marketing group, and we are working on a...

I am part of a marketing group, and we are working on a project for a local cable company,they currently serve 3,200 customers and sell 50 wireless boxes a month,what I need to do

Short term cash forecasts, The significant objectives of short-term cash fo...

The significant objectives of short-term cash forecast are as given: find out operating cash requirement anticipating short term financing Organization investment of

Standard error of estimate , Standard error of estimate (Se) The coeffi...

Standard error of estimate (Se) The coefficient of determination r 2 gives us an indication of the reliability of the estimate of total cost based on the regression equation b

Mortgages, You want to purchase a house that costs $325,000. You have a dow...

You want to purchase a house that costs $325,000. You have a down payment of $65,000 and will take out a mortgage to make up the difference. The AMC Mortgage Corporation offers a q

What is the significance of performance budgeting, Significance of performa...

Significance of performance budgeting Performance budgeting will help the management of companies by introduction of management objective to improve performance. Further it wi

Cost-price-total revenue and quantity changes, Quasar Computers are the fir...

Quasar Computers are the first all optical notebooks and their profit largely affects the manipulations in cost, price, total revenue and quantity changes. The market analysis show

Jit and management accounting , JIT and Management Accounting Manageme...

JIT and Management Accounting Management accountants in many organizations have been criticized because of their failure to change their managing accounting system to reflect

Budgetary styles, their definitions and the advantages and disadvantages

their definitions and the advantages and disadvantages

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd