In Theory, the Numerator of the Accounts Receivable Turnover Ratio

question 163

True/False

In theory, the numerator of the accounts receivable turnover ratio should include only sales made on account if the objective is to measure how quickly a firm collects its accounts receivable.

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Definitions:

Installment Note Payment

Payments made regularly on a loan that includes both interest and a portion of the principal.

Interest Portion

The part of a payment or financial obligation that represents the cost of borrowing or the charge for the service of using someone else's money.

Carrying Amount

Also known as book value, this is the value of an asset as recorded in the company's balance sheet, after deducting accumulated depreciation or amortization.

Bond Discount Account

An account that shows the difference between the face value and the lower selling price of a bond, which is amortized over the life of the bond.