Which one of the following statements is correct if a ﬁrm has a receivables turnover measure of 10?
A) It takes a ﬁrm 10 days to collect payment from its customers.
B) It takes a ﬁrm 36.5 days to sell its inventory and collect the payment from the sale.
C) It takes a ﬁrm 36.5 days to pay its creditors.
D) The ﬁrm has an average collection period of 36.5 days.
E) The ﬁrm has ten times more in accounts receivable than it does in cash.

Question

Quizplus · Accepted Answer

A receivables turnover ratio of 10 means that the company collects its accounts receivable 10 times in a given period (e.g. a year). To calculate the average collection period, we need to divide the number of days in the period (e.g. 365) by the receivables turnover ratio (10), which gives us an average collection period of 36.5 days. Therefore, choice D is correct. Choices A, B, C, and E are incorrect because they do not relate to the receivables turnover measure of 10.

Which One of the Following Statements Is Correct If a ﬁRm