Breaking Into Wall Street 400 Practice Test

Which expression represents Accounts Receivable Turnover?

Average Accounts Receivable / Sales AR / Sales Sales / AR Sales / Average Accounts Receivable

Correct Answer:

Sales / Average Accounts Receivable

Explanation:

Accounts receivable turnover shows how many times a company collects its average accounts receivable during a period. In practice, it’s net credit sales divided by the average accounts receivable (often calculated as (beginning AR + ending AR) / 2). Therefore, the correct expression is Sales divided by Average Accounts Receivable. Using any other form—such as the ratio inverted, using ending AR rather than the average, or placing AR in the numerator—would not yield the turnover figure and could mislead about collection efficiency. A higher turnover means faster collections; you can also estimate the average collection period as 365 divided by turnover.

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