Question

During 2014, the accounts receivable turnover rate for Cordner Company increased from 10 to 14 times per year. Which one of the following statements is the most likely explanation for the change?
a. The company's credit department has followed up with customers whose account balances are past due in order to generate quicker collections.
b. The company has decreased sales to its most credit worthy customers.
c. The company has increased the amount of time customers have to pay their accounts before they are past due.
d. The company has extended credit to more risky customers in order to increase sales.

Answer 1

Answer:The company's credit department has followed up with customers whose account balances are past due in order to generate quicker collections.

Explanation:The account receivable turnover rate is a term used in accounting to refer the rate at which debtors are redeeming or paying their debts. A higher account receivable turnover rate indicates that the company is efficient in collecting the debts owed to it by debtors and it shows that the company is maintaining a quality customer base who are willing to pay for the goods and services rendered.

THE MOST LIKELY EXPLANATION FOR THE CHANGE IS THAT THE COMPANY'S CREDIT DEPARTMENT HAS FOLLOWED UP WITH CUSTOMERS WHOSE ACCOUNT BALANCES ARE PAST DUE IN ORDER TO GENERATE QUICKER COLLECTIONS.