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

When days-to-collect increases,the receivables turnover will decrease.If days to collect is 32 then the receivables turnover is 365/32 = 11.4 and if the days to collect is 48 then the receivables turnover is 365/48 = 7.6.A decrease in receivable turnover does not indicate greater efficiency neither does it indicates a fall in bad debt expense.

The Days- To- Collect Increases from 32 to 48