The accounts receivable turnover ratio measures:

• A. The percentage of accounts receivable written off as uncollectible
• B. How efficiently a company collects cash from its credit customers during a period
• C. The proportion of credit sales to total sales
• D. The average time it takes to pay suppliers

Answer: (B)

Verified step by step guidance

1. Understand the concept of the accounts receivable turnover ratio: It measures how efficiently a company collects cash from its credit customers during a specific period. This ratio is a key indicator of the company's ability to manage its credit policies and collections.
2. Identify the formula for the accounts receivable turnover ratio: The formula is \( \text{Accounts Receivable Turnover Ratio} = \frac{\text{Net Credit Sales}}{\text{Average Accounts Receivable}} \). This formula helps calculate the frequency at which receivables are converted into cash.
3. Break down the components of the formula: Net Credit Sales refers to the total sales made on credit minus any returns or allowances. Average Accounts Receivable is calculated as \( \frac{\text{Beginning Accounts Receivable} + \text{Ending Accounts Receivable}}{2} \).
4. Interpret the result of the ratio: A higher accounts receivable turnover ratio indicates that the company is efficient in collecting receivables, while a lower ratio may suggest inefficiencies or issues with credit policies.
5. Apply the formula to a given scenario: To calculate the ratio, plug in the values for Net Credit Sales and Average Accounts Receivable into the formula. This will provide insight into the company's collection efficiency during the period.