Accounting: what is turnover???

richie021501
Fri, 31 Oct 2008 09:49:37 +0000

Hey guys, I’m an accounting major right now and I’m studying the chapter on financial ratios (my class isn’t on that chapter yet, but I really like accounting and wanted to get ahead). Well I’m having a difficult time understanding turnover (accounts receivable turnover and inventory turnover).

I mean I know how to compute the ratios, that’s simple. I just don’t know what the ratios mean (and I know in accounting, knowing formulas isn’t enough, and that you have to really understand the material). So if net credit sales for the year are $480,000, and average accounts receivable is $40,000, then accounts receivable turnover is 12, correct? I just don’t know what this 12 means. I know 12 or greater is desirable and I know that has something to do with there being 12 months in a year but…idk, I guess I just can’t put everything together.

The accounting definitions of turnover that I’ve found on the internet all say that it means how often an asset is replaced during the year (or something like that). This just doesn’t make much sense to me. Accountingcoach.com is usually a lot of help, but not in this case

When explaining this concept to me, please explain it in as clear and concise of a manner as possible. Please explain it as though you are talking to someone who has no knowledge of accounting (even though this isn’t the case in reality). Yea I’m kind of a moron when it comes to certain things so certain concepts really have to be explained very carefully haha

Any help is appreciated, thanks!