Connect 513 Graded QUIZ Question 13 of 20 13 1000 1 polints

Connect 5-13 Graded QUIZ Question 13 (of 20) 13. 10.00 1 polints TB 13-34 A decrease in accounts receivable turnover ratio i... A decrease in accounts receivable turnover ratio is Indicative of O an Increase in sales revenue. O a decline in cost of good sold O slower selling Inventory O an increase in accounts receivable. References ret the Results TB 13-34 A decrease in accounts

Solution

Accounts Receivables Turnover Ratio is using the formula : -

Net Credit Sales

Avg. Accounts Receivables

Here, this ratio indicates analysis like, in how many days on an average revenue is collected from receivables by the business company, what kind of collection policy a company has.

If mathematically analysed, decrease in the ratio is a result of a decrease in Numerator with relatively the same Denominator or increase in Denominator with relatively the same Numerator.

Hence, either decrease in \'Net Credit Sales\' with relatively the same amount of avg. receivables - which is on account of decrease in credit sales and slow collection of receivables OR increase in Avg. amount of receivables with relatively the same amount of credit sales - which is a result of an increase in avg. amount of receivables on account of slow collection of receivables.

Evaluation of Options:

a) increase in sales revenue might also be on account of cash sales only and not credit sales. Hence, incorrect answer.

b) decline in cost of goods sold is not related to the ratio. Hence, incorrect answer.

c) slower selling inventory is the inventory which is not moving out of stock and not being sold. Hence, incorrect answer.

d) as discussed above increase in receivables will result in a decrease in the ratio. Hence correct answer.