**Understanding Accounts Receivable Turnover Increases**The question posed is: "What is a possible reason for accounts receivable turnover to increase from one year to the next year?"**Options:**1. **Granting credit to customers with lower credit quality.** - This involves offering credit terms to customers who may not have a strong credit history or rating.2. **Decreased credit sales during a recession.** - Economic downturns might lead to reduced sales on credit, impacting turnover.3. **Improved collection process.** - Enhancing the efficiency of collecting outstanding receivables, possibly through better follow-up procedures or technology.4. **Write-off uncollectible receivables.** - Removing receivables deemed uncollectible from the accounts, which can affect turnover rates.**Educational Insight:**Improved collection processes generally lead to an increase in accounts receivable turnover, indicating faster collection of receivables. This metric can reflect the efficiency of a company’s credit and collections department.

Meaning of Accounts Receivable Turnover Accounts Receivable Turnover is the ratio which measures the ability of the company to collect its cash and how fast is it received from the receivables. The Account Receivables Turnover can be computed using the following formula. Accounts Receivable=Net SalesAverage Recivables REASON FOR ACCOUNTS RECEIVABLE TURNOVER TO INCREASE FROM ONE YEAR TO THE NEXT YEAR Improved collection process is the main reason for increasing of accounts receivable turnover from one year to next year as the company is having quality customers who pay back immediately which increases the turnover ratio automatically. All the other three options i.e. Granting credit to customers with lower credit quality, Decreased credit sales during a recession, write off uncollectible lead to a decrease in the receivable turnover ratio.

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What is a possible reason for accounts receivable turnover to increase from one year to the next year?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Conversion Cycle

Conversion cycle is also known as cash cycle or net operating cycle. Conversion cycle refers to how much time a company takes to turn its investments which is done from stock or any other financial resources into cash flows from sales.

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