Question

The accounts receivable turnover ratio increased significantly over a two-year period. This trend could indicate that...

The accounts receivable turnover ratio increased significantly over a two-year period. This trend could indicate that

The company is more aggressively collecting customer accounts.

Customer sales have substantially decreased.

The accounts receivable aging has deteriorated.

The company has eliminated its discount policy.

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Answer #1

Accounts receivable turn over ratio can be calculated by dividing the net credit sales by average accounts receivables. It shows the efficiency of the company in collecting its accounts receivables. It can increase in two situations: First if the sales improve and second if accounts receivables decrease.

If the company increases its efficiency in collecting its accounts receivables, its accounts receivables shall decrease. Hence, the company seems to be more agressively collecting customer accounts.

First option is correct

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