Question

Closing Trade Receivables ₹ 1,00,000; Cash Sales being 25% of Credit Sales; Excess of Closing Trade Receivables over Opening Trade Receivables ₹ 40,000; Revenue from Operations, i.e., Net Sales ₹ 6,00,000. Calculate Trade Receivables Turnover Ratio. 

Answer 1

Let Credit Sales be = x 

Cash Sales = Cash Sales + Credit Sales

`600000 = 25 x/100 + x`

or,`(125x)/100 = 600000`

or, x = `(60000 xx 100)/125` = 480000

Credit Sales = 4,80,000

Closing Trade Receivables = Opening Trade Receivables + 40,000

1,00,000 = Opening Trade Receivables + 40,000

Opening Trade Receivables = Rs 60,000

Average Trade Receivables = `("Opening Trade Receivables + Closing Trade Receivables")/2`

`= (100000 + 60000)/2`= Rs 80000

Trade Receivable Turnover Ratio = `"Credit Sales"/"Average Trade Receivables"`

`= 480000/80000` = 6 times