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

Question

Quizplus · Accepted Answer

A receivables turnover of 10 indicates that the company collects its credit sales 10 times over a given period, such as a year. To calculate the average number of days it takes to collect payment, we divide 365 (the number of days in a year) by the turnover ratio (10), which equals 36.5 days. Therefore, choice D is correct. Choices A, B, and C are incorrect because they do not accurately reflect what the receivables turnover ratio measures. Choice E is unrelated and not supported by the given information.

Which One of the Following Statements Is Correct If a Firm