If a company has an accounts receivable turnover ratio of 15, the company:
A) is converting its accounts receivable to cash 15 times per year.
B) is selling its inventory on 15 days credit terms.
C) is converting its inventory to accounts receivable in 15 days of production.
D) collects it receivables 15 times per year.

Question

Quizplus · Accepted Answer

The accounts receivable turnover ratio measures how many times a company is able to convert its accounts receivable to cash in a given period (usually a year). Therefore, if a company has an accounts receivable turnover ratio of 15, it is able to collect its accounts receivable 15 times per year. Choice B is incorrect because the accounts receivable turnover ratio is not related to inventory sales credit terms. Choice C is incorrect because the accounts receivable turnover ratio measures the time it takes to convert accounts receivable to cash, not the time it takes to convert inventory to accounts receivable.

If a Company Has an Accounts Receivable Turnover Ratio of 15