Question

If a company has accounts receivables turnover ratio of 6.81 in year 2017 and 7.19 in year 2018 and economic conditions have remained about the same in both years, which of the following statements is true?
a. In 2017 the company is collecting faster than in year 2018
b. In 2017 the company is collecting slower than in year 2018
c. Cannot compare the years because sales and other accounts have changed during the years.
d. All of the above statements are true.

Answer 1

Answer:

a. In 2017 the company is collecting faster than in year 2018.

Explanation:

Account receivable turnover tells us that the number of times any business is collecting it average account receivables. This formula is used to identify the ability of the business to collect from its account receivables.

Hence, the situation was better in 2.17 as compared to 2018 because the company was collecting its money from account receivables at a better recovery rate.

Good Luck.