Question

You were hired last year as the manager of accounts receivable for a medi-um sized company. In the following year, while sales on credit increased 20%, the same as overall revenues, by your efforts the average balance in accounts receivable stayed exactly the same as the last two prior year. Based upon this, which of the following statements could you make to the company President?
a. This year our accounts receivable turnover was down and our average collection period was down compared to the 2 previous years.
b. This year our accounts receivable turnover was up and our average collection period was down compared to the 2 previous years.
c. This year, our accounts receivable turnover was down and our average collection period was up compared to the 2 previous years.
d. This year our accounts receivable turnover was up and our average collection period was up compared to the 2 previous years.

Answer 1

Answer:

The statement that could be made to the company President is that:

b. This year our accounts receivable turnover was up and our average collection period was down compared to the 2 previous years.

Explanation:

Since the credit sales increased by 20% with overall revenue but the average balance in the accounts receivable remained exactly as the last two year's, it means that the accounts receivable turnover have improved together with the average collection period.  Given the noticeable improvements that have been instituted recently, accounts receivable are being collected timely.