The days to collect receivables increases from 32 to 48.Which of the following statements is true?
A)The company is likely to see its bad debt expense decrease.
B)The receivables turnover rate increases by 50%.
C)The company is becoming more efficient at collecting payment.
D)The receivables turnover rate falls from approximately 11.4 to 7.6.

Question

Quizplus · Accepted Answer

The receivables turnover rate is calculated as net credit sales divided by average accounts receivable. As the days to collect receivables increases, the average accounts receivable balance also increases, resulting in a lower receivables turnover rate. Therefore, option D is correct. Option A is incorrect because an increase in days to collect receivables generally leads to an increase in bad debt expense. Option B is incorrect because the receivables turnover rate actually decreases. Option C is incorrect because an increase in days to collect receivables indicates inefficiency in collecting payment.

The Days to Collect Receivables Increases from 32 to 48