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Trade Receivables Turnover Ratio

When the Debt...

Question

When the Debt Turnover Ratio is $4$ , what is the average collection period?

A

5

months

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B

4

months

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C

3

months

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D

2

months

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Solution

The correct option is C $3$ months
Debt Turnover ratio = Net credit sales/ Average trade receivables = $4$
Average collection period = $12$ months / Debt turnover ratio
= $12$ months / $4$
= $3$ months

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