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 of the following best describes the information provided by the accounts receivable turnover ratio?

It indicates the proportion of credit sales to total sales.

It reflects the company's ability to pay its short-term liabilities.

It shows the average time inventory is held before being sold.

It measures how efficiently a company collects its accounts receivable during a period.

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Verified step by step guidance

Understand the concept of the accounts receivable turnover ratio: This ratio measures how efficiently a company collects its accounts receivable during a specific period. It reflects the frequency with which receivables are converted into cash.

Recognize the formula for the accounts receivable turnover ratio: The formula is \( \text{Accounts Receivable Turnover Ratio} = \frac{\text{Net Credit Sales}}{\text{Average Accounts Receivable}} \). This ratio helps assess the effectiveness of credit and collection policies.

Analyze the options provided: Evaluate each statement to determine its relevance to the accounts receivable turnover ratio. For example, the proportion of credit sales to total sales is unrelated to this ratio, as it focuses on collection efficiency rather than sales composition.

Eliminate incorrect options: The ability to pay short-term liabilities is measured by liquidity ratios like the current ratio or quick ratio, not the accounts receivable turnover ratio. Similarly, the average time inventory is held before being sold is assessed using the inventory turnover ratio.

Select the correct answer: Based on the analysis, the correct description is that the accounts receivable turnover ratio measures how efficiently a company collects its accounts receivable during a period.