Financial accounting questions part two

Accounting
Tutor: None Selected Time limit: 1 Day

  1. How is the accounts receivable turnover computed? What information does this ratio provide?
  2. Describe what is meant by the term "goodwill."
Dec 4th, 2014

Accounts receivable turnover measures the ability of lets say a company to efficiently issue a credit to its customers and collect  funds from them in a timely manner.It is computed by the following formular

Accounts receivable= Net annual credit sales/{(Beginning accounts receivable+ending accounts receivable)/2}

A high turnover ratio indicates  a combination of  conservative credit policy and an aggressive collection department as well as a number of high quality customers.

A low turnover ratio represents an opportunity to collect excessively old accounts receivable that are unnecessary  tying working capital.A low turnover ratio may also indicate an excessive amount of bad debt.

Goodwill refers to an intangible asset that arises as a result of the acquisition  of one company by another for a premium value.It is found in the portions of companies' assets in the balance sheet.It is called  an intangible asset since it is not physical like building,equipment and furniture

Dec 4th, 2014

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