Hopewell's accounts receivable turnover ratio is 6.5, and their credit terms are 60 days.Which of the following statements is true?

Question

Quizplus · Accepted Answer

A receivables turnover ratio of 6.5 indicates that Hopewell is collecting their receivables 6.5 times per year. Since their credit terms are 60 days, this indicates that they are collecting their receivables in an average of 56 days (365/6.5). Since this is faster than their credit terms of 60 days, it indicates that Hopewell is collecting faster than their credit terms. Therefore, the correct answer is A. They do not necessarily need to offer discounts or increase their allowance for uncollectibles based on this information.

Hopewell's Accounts Receivable Turnover Ratio Is 6