Receivables turnover is the reciprocal of the collection period times 365.

Question

Quizplus · Accepted Answer

This statement is true. Receivables turnover is calculated by dividing net credit sales by average accounts receivable. The collection period is the average number of days it takes customers to pay their invoices. Therefore, the formula for receivables turnover is: receivables turnover = net credit sales / average accounts receivable. The collection period is then calculated by dividing 365 days by the receivables turnover. Therefore: collection period = 365 / receivables turnover. Taking the reciprocal of this formula gives us: receivables turnover = 365 / collection period.

Receivables Turnover Is the Reciprocal of the Collection Period Times