Asked by Marvelous Abraham on May 22, 2024
Verified
A high average collection period may indicate:
A) management's willingness to quickly write-off questionable receivables.
B) customers are paying for purchases quickly.
C) a strict collection policy.
D) None of the above
Average Collection Period
The average number of days it takes for a company to collect payments from its credit sales.
Collection Policy
The procedures and guidelines used by a company to monitor and manage the collection of debts owed to it.
Questionable Receivables
Accounts receivable that might not be collected due to issues like customer disputes or financial instability.
- Interpret various financial ratios and their implications.
Verified Answer
MA
Muhammad ArshanMay 29, 2024
Final Answer :
D
Explanation :
A high average collection period indicates that customers are taking a longer time to pay for their purchases, which could be due to various reasons such as financial difficulties or lenient credit policies. However, it does not necessarily indicate management's willingness to write-off questionable receivables or a strict collection policy.
Learning Objectives
- Interpret various financial ratios and their implications.