If a firm collects its accounts receivable,
A) the current ratio increases
B) inventory turnover increases
C) the average collection period (days sales outstanding) is reduced
D) inventory is reduced

Question

​If a firm collects its accounts receivable,
A) ​the current ratio increases
B) ​inventory turnover increases
C) ​the average collection period (days sales outstanding) is reduced
D) ​inventory is reduced

Quizplus · Accepted Answer

Collecting accounts receivable means that the firm is receiving cash, which reduces the amount of money tied up in outstanding payments. This reduces the average collection period or days sales outstanding, improving the firm's liquidity. None of the other options are affected by collecting accounts receivable.

​If a Firm Collects Its Accounts Receivable

If a Firm Collects Its Accounts Receivable