ABC Corp Extends Credit Terms of 45 Days to Its Customers

question 171

Multiple Choice

ABC Corp. extends credit terms of 45 days to its customers. Its credit collection would likely be considered poor if its average collection period was

• A) 30 days.
• B) 36 days.
• C) 47 days.
• D) 57 days.

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Definitions:

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations with its current assets.

Operating Expenses

Costs associated with the day-to-day functions of a business, excluding production costs.

Gross Margin

Gross margin is a financial metric that measures the difference between revenue and the cost of goods sold (COGS), divided by revenue.

Accounts Receivable Turnover

A ratio that measures how effectively a company collects its receivables, calculated by dividing total net sales by the average accounts receivable.