The days- to- collect increases from 32 to 48.Which of the following statements is true?
A)The company is likely to see its bad debt expense fall.
B)The receivables turnover rate rises 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 by dividing net sales by average accounts receivable, which indicates how quickly the company collects payment from its customers. If the days-to-collect increases from 32 to 48, it means that the company is taking longer to collect payment, and therefore, the receivables turnover rate falls from approximately 11.4 to 7.6 (365/32=11.4 vs. 365/48=7.6). Therefore, the correct answer is D.

The Days- To- Collect Increases from 32 to 48