Question

The accounts receivable turnover ratio measures the number of times the business collects the average accounts receivable balance during the year. The lower the ratio, the faster the collections on account.

A. True.
B. False

Answer 1

The accounts receivable turnover ratio measures the efficiency of a company's accounts receivable management and how quickly it collects its receivables.

Step-by-step explanation:

The statement in the question is false. The accounts receivable turnover ratio actually measures the efficiency of a company's accounts receivable management. It is calculated by dividing the net credit sales by the average accounts receivable balance during a specific period, usually a year. A higher ratio indicates that the company is collecting its receivables more quickly, while a lower ratio indicates that collections are taking longer.

For example, let's say a company had net credit sales of $1,000,000 during the year and an average accounts receivable balance of $250,000. The accounts receivable turnover ratio would be calculated as $1,000,000 / $250,000 = 4. This means that, on average, the company collects its receivables four times during the year.

In summary, the accounts receivable turnover ratio is a measure of how quickly a company collects its receivables. The higher the ratio, the faster the collections, not the lower.