Which one of the following statements is correct if a firm has an accounts receivable turnover measure of 10?
A)It takes the firm 36.5 days to pay its creditors.
B)It takes the firm 36.5 days to sell its inventory and collect payment from the sale.
C)It takes the firm 36.5 days to collect payment for a sale.
D)The firm has 10 times more in accounts receivable than it does in cash.
E)It takes an average of 10 days to collect payment from the firm's customers.

Question

Quizplus · Accepted Answer

Accounts receivable turnover measures how quickly a company collects payment from its customers. A higher turnover ratio indicates that the company is collecting payments more quickly. A turnover ratio of 10 means that the company is collecting payment every 36.5/10 = 3.65 days, on average. Therefore, statement C is correct: it takes the firm 36.5 days to collect payment for a sale.

Which One of the Following Statements Is Correct If a Firm