Question

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

a)The company is more aggressively collecting customer accounts. b)Customer sales have substantially decreased.
c)The accounts receivable aging has deteriorated. d)The company has eliminated its discount policy.

Answer 1

The increase in accounts receivable turnover ratio indicates that the company is more actively collecting customer accounts.

Step-by-step explanation:

The increase in accounts receivable turnover ratio indicates that the company is more actively collecting customer accounts (option a).

This ratio measures the efficiency of a company's collection of credit sales from customers. If the ratio increases, it means that the company is collecting its accounts receivable more quickly, which is a positive sign of effective credit management.

For example, if the accounts receivable turnover ratio was 8 in Year 1 and increased to 12 in Year 2, it would mean that the company is collecting its receivables more frequently in Year 2, indicating a more aggressive collection approach.

Therefore, the correct answer is a) The company is more aggressively collecting customer accounts.