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

Previous problemNext problem

Struggling with Financial Accounting?

Join thousands of students who trust us to help them ace their exams!Watch the first video

Multiple Choice

Which of the following statements about the accounts receivable turnover ratio is true?

A high accounts receivable turnover ratio always means the company has poor credit policies.

A lower accounts receivable turnover ratio generally indicates that a company is collecting receivables more quickly.

The accounts receivable turnover ratio measures how many times a company collects its average accounts receivable during a period.

The accounts receivable turnover ratio is calculated as net credit sales divided by total assets.

Previous problemNext problem

Verified step by step guidance

Step 1: Understand the concept of the accounts receivable turnover ratio. This ratio measures how efficiently a company collects its receivables or how many times, on average, the company collects its average accounts receivable during a specific period.

Step 2: Clarify the formula for the accounts receivable turnover ratio. The correct formula is:

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

. It is not calculated as net credit sales divided by total assets, as stated in one of the options.

Step 3: Analyze the implications of a high accounts receivable turnover ratio. A high ratio typically indicates that the company is collecting receivables efficiently, not necessarily that it has poor credit policies. Poor credit policies would depend on other factors, such as customer satisfaction or bad debt levels.

Step 4: Evaluate the implications of a low accounts receivable turnover ratio. A lower ratio generally indicates slower collection of receivables, which could suggest inefficiencies in the collection process or lenient credit policies.

Step 5: Identify the correct statement. Based on the explanation, the correct statement is: 'The accounts receivable turnover ratio measures how many times a company collects its average accounts receivable during a period.' This aligns with the definition and purpose of the ratio.