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

Question

Quizplus · Accepted Answer

The receivables turnover measure indicates how many times a firm collects payment from its customers in a given period. In this case, the measure is 10, which means that the firm collects payment from its customers 10 times in a year. Since a year has 365 days, the average collection period would be 365/10=36.5 days. Therefore, option E is the correct statement. Option A is incorrect as the receivables turnover measure does not provide information about the payment period to the firm's creditors. Option B is also incorrect as it refers to the inventory turnover measure. Option C is too simplistic as it provides the same information as the receivables turnover measure. Option D is irrelevant as it compares accounts receivable to cash, which are not directly related to the receivables turnover measure.

Which One of the Following Statements Is Correct If a Firm