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

The accounts receivable turnover ratio measures:

The proportion of net income to total assets.

How efficiently a company collects cash from its credit customers.

The average time it takes to sell inventory.

The percentage of sales made on credit.

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Verified step by step guidance

Understand the concept of the accounts receivable turnover ratio: It measures how efficiently a company collects cash from its credit customers. This ratio is important for assessing the effectiveness of a company's credit and collection policies.

Identify the formula for the accounts receivable turnover ratio: \( \text{Accounts Receivable Turnover Ratio} = \frac{\text{Net Credit Sales}}{\text{Average Accounts Receivable}} \).

Break down the components of the formula: Net Credit Sales refers to the total sales made on credit minus any returns or allowances. Average Accounts Receivable is calculated as the average of the beginning and ending accounts receivable balances for the period.

Interpret the result of the ratio: A higher turnover ratio indicates that the company is collecting cash from its credit customers more efficiently, while a lower ratio may suggest inefficiencies in the collection process or issues with customer payments.

Relate the ratio to the options provided in the problem: The correct interpretation of the accounts receivable turnover ratio is 'How efficiently a company collects cash from its credit customers,' as it directly measures the speed and effectiveness of cash collection from credit sales.