21.The accounts receivable turnover indicates how often accounts receivable are received and collected during the period.
22.A high accounts receivable turnover in comparison with competitors suggests that the firm should tighten its credit policy.
23.The accounts receivable turnover is calculated by dividing average accounts receivable by net sales.
24.A company had net sales of $550,000 and an average accounts receivable of $110,000. Its accounts receivable turnover equals 5.0.
Accounts Receivable Turnover = Net Sales/Average Accounts Receivable
Accounts Receivable Turnover = $550,000/$110,000 = 5.0
25.A Company had net sales of $23,000 million, and its average account receivables were $5,700 million. Its accounts receivable turnover is 0.24.
Accounts Receivable Turnover = Net Sales/Average Accounts Receivable
Accounts Receivable Turnover = $23,000/$5,700 = 4.0
26.The direct write-off method of accounting for bad debts records the loss from an uncollectible account receivable when it is determined to be uncollectible.
27.The matching principle requires use of the allowance method of accounting for bad debts.
28.Companies follow both the matching principle and the materiality constraint when applying the direct write-off method.
29.The use of the direct write-off method is allowed under the materiality constraint.
30.The advantage of the allowance method of accounting for bad debts is that it identifies the specific customers who will not pay their bills.