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Question

Arvind Ltd is trying to ascertain its efficiency and calculates the accounts receivable turnover ratio. The ratio is higher in FY21 as compared to FY20. What does a higher accounts receivable turnover ratio in FY21 indicate?

A Lower sales Correct Answer Incorrect Answer
B Higher sales Correct Answer Incorrect Answer
C Lower debt collection period Correct Answer Incorrect Answer
D Higher debt collection period Correct Answer Incorrect Answer
E None of the above Correct Answer Incorrect Answer

Solution

The accounts receivable turnover ratio, also known as the debtor’s turnover ratio, is an efficiency ratio  that measures how efficiently a company is collecting revenue – and by extension, how efficiently it is using its assets. The accounts receivable turnover ratio measures the number of times over a given period that a company collects its average accounts receivable . The accounts receivable turnover in days shows the average number of days that it takes a customer to pay the company for sales on credit. As such, a higher ratio would mean its taken lesser days to collect from debtors.

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