The number of days' sales uncollected:
A) Is calculated by dividing sales by accounts receivable.
B) Measures a company's ability to pay its bills on time.
C) Is used to evaluate the liquidity of receivables.
D) Measures a company's debt to income.
E) Is calculated by dividing accounts receivable by sales.

Question

Quizplus · Accepted Answer

The number of days' sales uncollected is used to evaluate the liquidity of receivables. It measures how long it takes for a company to convert its accounts receivable into cash. It is calculated by dividing accounts receivable by average daily sales. It is also known as the accounts receivable turnover ratio. Choices A and E are incorrect because they have the calculation formula reversed. Choice B is incorrect because it refers to the accounts payable turnover ratio, which measures a company's ability to pay its bills on time. Choice D is incorrect because it refers to the debt-to-income ratio, which measures a person's debt in relation to their income.

The Number of Days' Sales Uncollected