Which of the following statements is true regarding the accounts receivable turnover ratio?Question 29Answera.A higher ratio indicates slower collection of receivables.b.A lower ratio indicates faster collection of receivables.c.A higher ratio indicates faster collection of receivables.d.A lower ratio indicates slower collection of receivables.
Question
Which of the following statements is true regarding the accounts receivable turnover ratio?Question 29Answera.A higher ratio indicates slower collection of receivables.b.A lower ratio indicates faster collection of receivables.c.A higher ratio indicates faster collection of receivables.d.A lower ratio indicates slower collection of receivables.
Solution
The correct answer is c. A higher accounts receivable turnover ratio indicates faster collection of receivables.
Here's why:
The accounts receivable turnover ratio measures how efficiently a company uses its assets. Specifically, it measures how quickly a company collects cash from its customers after a sale has been made.
A higher ratio means that collections are being made more quickly, improving the company's cash flow. Conversely, a lower ratio indicates that the company takes longer to collect from its customers, which could be a sign of inefficiency or problems with cash flow.
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