Which of the following is most likely to indicate that a firm is experiencing difficulty in collecting its receivables?
A)Its average collection period decreases from 36 to 32.
B)Its accounts receivable turnover increases from 8 to 10.
C)Its accounts receivable turnover decreases from 10 to 8.
D)The bad debt reserve decreases by 10%.

Question

Quizplus · Accepted Answer

A decrease in accounts receivable turnover indicates that the firm is taking longer to collect its receivables, possibly due to difficulty in collecting from customers. Option A suggests an improvement in collection period, which is not indicative of difficulty in collecting receivables. Option B indicates an improvement in accounts receivable turnover, which is not indicative of difficulty in collecting receivables. Option D suggests that the firm is reducing its allowance for bad debts, which is not indicative of difficulty in collecting receivables.

Which of the Following Is Most Likely to Indicate That