The ratio calculated by net sales on account divided by average net receivables is used to measure which of the following?

• A. Inventory Turnover
• B. Accounts Receivable Turnover Ratio Calculation
• C. Current Ratio
• D. Liquidity Ratio

Answer: (B)

This measures how efficiently a company collects what customers owe on credit. It uses net credit sales (net sales on account) divided by average net receivables (beginning plus ending net receivables, often divided by two, and net of allowances). The result tells you how many times, on average, receivables are collected during the period. A higher turnover means faster collections and better cash flow; a lower turnover indicates slower collections and potential collection issues. You can translate the turnover into a rough collection period by doing 365 divided by the turnover.

Other options don’t fit because they focus on different assets or liquidity concepts: inventory turnover uses cost of goods sold divided by average inventory; the current ratio uses current assets divided by current liabilities; liquidity ratios in general refer to short-term solvency but not specifically to how quickly receivables are collected.