What is a measure of the average speed with which accounts receivable are collected?

What is a measure of the average speed with which accounts receivable are collected?

• A. Current ratio
• B. Quick ratio
• C. Acid test ratio
• D. Receivable turnover

Answer: (D)

The measure of the average speed with which accounts receivable are collected is best represented by the concept of receivable turnover. This ratio indicates how efficiently a company collects cash from its credit sales. It is calculated by dividing the net credit sales by the average accounts receivable over a specific period. A higher receivable turnover ratio signifies that a company is collecting its receivables more quickly, leading to improved cash flow and potentially better liquidity. In contrast, the current ratio, quick ratio, and acid test ratio are all metrics that assess a company's liquidity and ability to meet its short-term obligations, but they do not provide insight into the speed of collecting revenue from customers. Therefore, while those ratios are valuable for understanding a company’s overall financial health, the receivable turnover specifically focuses on the efficiency of accounts receivable management.

The measure of the average speed with which accounts receivable are collected is best represented by the concept of receivable turnover. This ratio indicates how efficiently a company collects cash from its credit sales. It is calculated by dividing the net credit sales by the average accounts receivable over a specific period. A higher receivable turnover ratio signifies that a company is collecting its receivables more quickly, leading to improved cash flow and potentially better liquidity.

In contrast, the current ratio, quick ratio, and acid test ratio are all metrics that assess a company's liquidity and ability to meet its short-term obligations, but they do not provide insight into the speed of collecting revenue from customers. Therefore, while those ratios are valuable for understanding a company’s overall financial health, the receivable turnover specifically focuses on the efficiency of accounts receivable management.