The days to collect receivables increased from 32 last year to 48 this year.Which of the following statements is correct?
A) The company is likely to see its Bad Debt Expense decrease.
B) The company is becoming more efficient at collecting payment.
C) The receivables turnover rate must have increased from last year to this year.
D) The receivables turnover rate decreased from approximately 11.4 to 7.6 from last year to this year.

Question

Quizplus · Accepted Answer

The receivables turnover rate is calculated by dividing net credit sales by average accounts receivable. Since the days to collect receivables increased from 32 to 48, it means that it took longer for the company to collect its receivables. This indicates a decrease in the receivables turnover rate, which means that the company was able to collect its receivables less frequently. Therefore, the correct answer is D. A and B are incorrect because an increase in days to collect receivables is not a positive sign for a company, and it does not necessarily indicate that bad debt expense will decrease or that the company is becoming more efficient at collecting payment. C is incorrect because the receivables turnover rate must have decreased instead of increased.

The Days to Collect Receivables Increased from 32 Last Year