A company currently allows its customers to take 30 days to pay their accounts receivable. Almost all of its customers pay in around 30 days. If a company changes its policy, and allows customers to wait 60 days before paying, it is likely that in future years
A) Accounts receivable turnover will increase from about 12 to about 24.
B) Accounts receivable turnover will decrease from about 12 to about 6.
C) Accounts receivable turnover will increase from around 6 to about 12.
D) Accounts receivable turnover will decrease from around 6 to around 3.

Question

Quizplus · Accepted Answer

Accounts receivable turnover is calculated as net credit sales divided by average accounts receivable. By allowing customers to wait 60 days before paying, the average accounts receivable will increase as customers take longer to pay. This will decrease the accounts receivable turnover from its current level of around 12 to around 6.

A Company Currently Allows Its Customers to Take 30 Days