If the company changes its credit granting policies and begins granting credit to less creditworthy customers, which of the following statements is true regarding the likely effect on the receivables turnover ratio and the days to collect measure?
A) The receivables turnover ratio will decrease and days to collect will increase.
B) The receivables turnover ratio will increase and days to collect will increase.
C) The receivables turnover ratio will decrease and days to collect will decrease.
D) The receivables turnover ratio will not change and days to collect will decrease.

Question

Quizplus · Accepted Answer

When credit is granted to less creditworthy customers, it is likely that there will be an increase in the number of past due accounts and longer collection periods. This will result in a decrease in the receivables turnover ratio (as sales will remain relatively constant but the average accounts receivable balance will increase) and an increase in the days to collect measure.

If the Company Changes Its Credit Granting Policies and Begins