Snype, Inc. has an accounts receivable turnover ratio of 7.3. Stork Company has an accounts receivable turnover ratio of 5.0. Which of the following statements is correct?
A) Snype's average collection period is less than Stork's.
B) Stork's average collection period is less than Snype's.
C) Snype has a lower accounts receivable account on average than does Stork Company.
D) Stork Company has (on average) a lower accounts receivable account than does Snype.

Question

Quizplus · Accepted Answer

The accounts receivable turnover ratio measures how quickly a company collects its accounts receivable. A higher ratio means the company is collecting its accounts receivable more quickly than a company with a lower ratio. Therefore, Snype's accounts receivable are collected more quickly than Stork's accounts receivable. This means that Snype's average collection period is less than Stork's.