The financial ratio days' sales in receivables is measured as:
A)receivables turnover plus 365 days.
B)accounts receivable times 365 days.
C)accounts receivable plus sales, divided by 365 days.
D)365 days divided by the receivables turnover.
E)365 days divided by the accounts receivable.

Question

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Days' sales in receivables is calculated by dividing 365 days by the receivables turnover. This ratio measures the number of days it takes for a company to collect cash from its credit sales. Choice A is incorrect because it adds 365 days to the receivables turnover, which would give a result in days beyond one year. Choice B is incorrect because it only multiplies accounts receivable by 365 days, without taking into account sales. Choice C is incorrect because it adds accounts receivable and sales, which doesn't give a clear picture of how long it takes to collect receivables. Finally, choice E is incorrect because it divides 365 days by accounts receivable, which also doesn't provide an accurate measure of the time it takes to collect receivables.

The Financial Ratio Days' Sales in Receivables Is Measured As