The days to collect receivables increased from 32 days last year to 48 days 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

Days to collect = 365 ÷ Receivables turnover ratio
Receivables turnover ratio = 365 ÷ Days to Collect
Last year:
= 365 ÷ 32 = 11.4 times
This year:
= 365 ÷ 48 = 7.6 times
An increase in the days to collect means a longer (worse)time to collect,which would cause an increase (rather than a decrease)in Bad Debt Expense.The receivables turnover increased (rather than decreased)from last year to this year.

The Days to Collect Receivables Increased from 32 Days Last