What relationship exists between the average collection period and accounts receivable turnover?
A) There is a direct and proportional relationship.
B) Both ratios are expressed in number of times receivables are collected per year.
C) Both ratios are expressed in number of days.
D) As average collection period increases (decreases) the accounts receivable turnover decreases (increases).

Question

Quizplus · Accepted Answer

The average collection period and accounts receivable turnover are inversely related. As the average collection period increases, it means that it takes longer for the company to collect its receivables, which results in a lower turnover ratio. On the other hand, a lower average collection period means that the company is collecting its receivables more quickly, resulting in a higher turnover ratio. Therefore, as the average collection period increases, the accounts receivable turnover decreases, and vice versa.

What Relationship Exists Between the Average Collection Period and Accounts