Which of the following would best explain an increase in receivables turnover? A. The company adopted new credit policies last year and began offering credit to customers with weak credit histories. B. Due to problems with

B. Due to problems with an error in its old credit scoring system, the company had accumulated a substantial amount of uncollectible accounts and wrote off a large amount of its receivables.

Explanation:

The complete options are

A. The company adopted new credit policies last year and began offering credit to customers with weak credit histories.

B. Due to problems with an error in its old credit scoring system, the company had accumulated a substantial amount of uncollectible accounts and wrote off a large amount of its receivables.

C. To match the terms offered by its closest competitor, the company adopted new payment terms now requiring net payment within 30 days rather than 15 days, which had been its previous requirement.

Receivables turnover is a measure of how quickly the company is able to receive cash from customers that have made purchases on account/credit. It is given as the ratio of net credit sales to average receivables. Hence any measure that tends to increase the average receivable reduces the receivables turnover. As such, writing off receivables reduces the average receivables and in turn increases the receivables turnover.

These are the options:

The company adopted new credit policies last year and began offering credit to customers with weak credit histories.

Due to problems with an error in its old credit scoring system, the company had accumulated a substantial amount of uncollectible accounts and wrote off a large amount of its receivables.

To match the terms offered by its closest competitor, the company adopted new payment terms now requiring net payment within 30 days rather than 15 days, which had been its previous requirement.

Answer:

Due to problems with an error in its old credit scoring system, the company had accumulated a substantial amount of uncollectible accounts and wrote off a large amount of its receivables.

Explanation:

Receivable turnoverbis also called debtor's turnover ratio. It measures how well a company is extending credit and collecting debt, and shows how efficiently a business uses its assets.

Receivables turnover = net credit sales/average accounts receivable

When account recievables are written off the denominator decreases. Therefore Receivable turnover ratio increases.

If the scoring system had an error then some unqualified people collected credit, resulting in bad credit. When the bad credit is written off it will increase the Receivable turnover ratio.