The receivables turnover measures the relative size of the accounts receivable and the effectiveness of credit policies.

Question

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The receivables turnover ratio is calculated by dividing net credit sales by average accounts receivable, and it indicates how quickly a company collects cash from its customers. A higher turnover ratio indicates more efficient credit policies and a lower risk of bad debt. Therefore, the statement is true.

The Receivables Turnover Measures the Relative Size of the Accounts