Question

The Accounts Receivable Turnover is calculated by taking Net Sales and dividing it by Average Accounts...

The Accounts Receivable Turnover is calculated by taking Net Sales and dividing it by Average Accounts Receivable.

Question: If a company wishes to improve its Accounts Receivable Turnover rate, which of the following would be the best strategy?

Select one: a. Offer customers credit terms of 2/10, n/30 instead of terms 1/10, n/60 b. Increase its sales force c. Lower its selling prices d. Reduce the number of employees working in the Accounts Receivable department

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Answer #1

The correct answer is

a0 Offer Customer Credit Terms of 2 /10 , n/30 instead of terms 1/10, n/60

Explaination

Offering more cash discount to the customer for early payment will allow company to improve its account receivable turnover ratio. If improved polciy of offering more cash discount, customer will be willing to pay early, sue to which the account receivable decreases. As account receivable turnover ratio is inversely propotional to account receivable turnover ratio, so it meand lower the account receivable, higher the account receivabke turnover ratio, which is a good sign for the company.

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