Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

14. Financial Statement Analysis

Ratios: Accounts Receivable (AR) Turnover

Financial Accounting

14. Financial Statement Analysis

Ratios: Accounts Receivable (AR) Turnover

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Multiple Choice

Which ratio is used to measure how quickly credit sales are converted into cash?

Accounts Receivable Turnover Ratio

Debt-to-Equity Ratio

Inventory Turnover Ratio

Current Ratio

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Verified step by step guidance

Step 1: Understand the purpose of the question. The goal is to identify the ratio that measures how efficiently a company converts its credit sales into cash.

Step 2: Review the given options. Each ratio has a specific purpose: Accounts Receivable Turnover Ratio measures the efficiency of collecting receivables, Debt-to-Equity Ratio assesses financial leverage, Inventory Turnover Ratio evaluates inventory management, and Current Ratio measures short-term liquidity.

Step 3: Focus on the Accounts Receivable Turnover Ratio. This ratio is specifically designed to measure how quickly a company collects cash from its credit sales. It is calculated using the formula:

\frac{Net Credit Sales}{Average Accounts Receivable}

Step 4: Eliminate the other options. Debt-to-Equity Ratio, Inventory Turnover Ratio, and Current Ratio do not directly relate to the conversion of credit sales into cash. They serve different financial analysis purposes.

Step 5: Conclude that the Accounts Receivable Turnover Ratio is the correct answer, as it directly measures the efficiency of converting credit sales into cash.