Question

The accounts receivable turnover

is a method of evaluating the solvency of net accounts receivable.

can be used to compute the average collection period.

is computed by dividing net credit sales for the accounting period by the cash realizable value of accounts receivable on the last day of the accounting period.

is only important to internal users of accounting information.

Answer 1

Accounts receivable turnover ratio: Accounts receivable turnover ratio is an efficiency ratio that determines how effectively a company can collect money from its customers. It determines the efficiency o the company in managing its credit. It is also referred to as receivable turnover ratio. A higher ratio is preferable as it shows that company is dealing with quality customers who pays their debts quickly. It is further used in computing average collection period. It is computed as follows: Net credit sales Accounts receivable turnover ratio = - Average account receivables Average collection period is computed as follows: Average collection period = 365 Accounts receivable turnover ratio It is incorrect as it is a measure of efficiency not solvency. It is correct as it is used in computing average collection period. It is incorrect as according to formula average of both the beginning and ending accounts receivable is been taken. It is incorrect as it is helpful to both the internal and external users of the company in determining the efficiency. Thus, correct answer is b.