Multiple Choice
Accounts receivable turnover is calculated using which of the following formulas?
24
views
14. Financial Statement Analysis
Ratios: Accounts Receivable (AR) Turnover
Struggling with Financial Accounting?
Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
Which of the following best describes what the days' sales uncollected ratio assesses?
A
It determines the proportion of receivables written off as uncollectible.
B
It calculates the percentage of sales that are made on credit.
C
It measures the average number of days it takes to collect accounts receivable after a sale.
D
It evaluates the efficiency of inventory management over a period.
Verified step by step guidance1
Understand the concept of the days' sales uncollected ratio: This ratio measures the average number of days it takes for a company to collect its accounts receivable after a sale. It is a key indicator of liquidity and efficiency in managing receivables.
Identify the formula for the days' sales uncollected ratio: The formula is \( \text{Days' Sales Uncollected} = \frac{\text{Accounts Receivable}}{\text{Net Sales}} \times \text{Number of Days in the Period} \).
Analyze the options provided in the problem: The correct description should align with the purpose of the ratio, which is to assess the average collection period for receivables.
Eliminate incorrect options: For example, the ratio does not evaluate inventory management, nor does it calculate the percentage of credit sales or the proportion of receivables written off.
Select the correct answer: Based on the analysis, the correct description is 'It measures the average number of days it takes to collect accounts receivable after a sale.'
7:40mWatch next
Master Ratios: Accounts Receivable (AR) Turnover with a bite sized video explanation from Brian
Start learningRelated Videos
Related Practice
Ratios: Accounts Receivable (AR) Turnover practice set
Problem sets built by lead tutorsExpert video explanations