The accounts receivable turnover ratio increased significantly over a two-year period. This trend could indicate that:

Question

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Choice "C" is correct. The accounts receivable turnover ratio is calculated as sales / receivables. More aggressive collection policies will result in a decrease in the receivables balance, which in turn causes the turnover ratio to increase. Choice "A" is incorrect. A deterioration in the aging of receivables implies a greater receivables balance, which would cause the turnover ratio to decline. Choice "B" is incorrect. Elimination of the company's discount policy would increase both the sales figure and the receivables balance. The net effect on the turnover ratio would depend upon the proportionate impact of each increase. Choice "D" is incorrect. A decline in sales would cause a decrease in both sales and receivables. The net effect on the turnover ratio would depend upon the proportionate impact of each decrease.

The Accounts Receivable Turnover Ratio Increased Significantly Over a Two-Year