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

Explain the quick ratio - liquidity ratios, Quick ratio Meaning: this...

Quick ratio Meaning: this ratio establishes a relationship among quick assets and current liabilities Objective: the objective of commuting this ratio is to calculate th

accounts payable turnover ratio , Accounts Payable Turnover Ratio is a sh...

Accounts Payable Turnover Ratio is a short-term liquidity measure which is used to calculate the rate at which a company pays off its suppliers. Accounts payable turnover ratio is

Objectives of working capital decisions, After going through this section, ...

After going through this section, you must be capable to: Know the concept and characteristics of working capital; Identify with the difference among net working capital

Accounting rate of return - arr, ARR gives a fast estimate of a project's v...

ARR gives a fast estimate of a project's value over its useful life. ARR is derived by determining profits before taxes and interest.   ARR is an accounting technique used fo

Case law & study, You are charged with describing the important considerati...

You are charged with describing the important considerations in the decision-making process to upper management. In your response, be sure to include the following: • A descript

Ordering costs-relevant costs of eoq model, Ordering Costs These are in...

Ordering Costs These are incurred in getting purchased items into the company’s inventory or stores, and usually consist of clerical costs of: •    Making the purchase demand.

Management accountant vs financial accountant, Difference between manageria...

Difference between managerial accounting and financial accounting are mentioned below Audience – Internal Vs External Format of Reporting – Free format Vs prescribed

Variances analysis , Variances Analysis Variances are the differences ...

Variances Analysis Variances are the differences between actual results and expected results. Expected results are the standard costs and standard revenues. Price, rate and

Motives for holding inventories, MOTIVES FOR HOLDING INVENTORIES If pro...

MOTIVES FOR HOLDING INVENTORIES If production and delivery of goods were instantaneous, there would be no need for inventories. However in reality, the manufacturing and purcha

Explain direct labor cost standard, Explain Direct labor cost standard ...

Explain Direct labor cost standard The setting up of standard labor cost for each product would require: a) The determination of budgeted fixed overhead for a period b) B

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