A Decreasing Average Collection Period Indicates

question 67

Multiple Choice

A decreasing average collection period indicates:

• A) the firm is generating more income.
• B) accounts receivable is going up.
• C) the company is becoming more efficient in its collection policy.
• D) the company is becoming less efficient in its collection policy.

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Definitions:

Direct Method

An accounting method used to prepare the cash flow statement, which shows actual cash inflows and outflows from operating activities.

Operating Expenses

Expenditures that a business incurs through its normal business operations, such as rent, utilities, and salaries, excluding production costs.

Accounts Receivable

Receivables from clients for services or goods delivered by a company but not yet compensated.

Accounts Payable

Money owed by a business to its suppliers shown as a liability on the company's balance sheet.