B Limited had credit sales of 3,285,000 and year-end receivables of 405,000. If they had offered cash discounts, receivables would have been 351,000 and the allowance for doubtful debts would have decreased by 9,000. What would be the change in trade receivables turnover (in days)?

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SSC Financial and Cost Accounting P-1 QUESTION #6091

Question 1

B Limited had credit sales of $3,285,000 and year-end receivables of $405,000. If they had offered cash discounts, receivables would have been $351,000 and the allowance for doubtful debts would have decreased by $9,000. What would be the change in trade receivables turnover (in days)?

5 days faster
5 days slower
6 days faster✔️
6 days slower

Correct Answer Explanation

Current Turnover = ($405,000 / $3,285,000) $\times$ 365 = 45 days.
New Turnover = ($351,000 / $3,285,000) $\times$ 365 = 39 days.
Difference = 45 - 39 = 6 days faster. Note: Allowance for doubtful debts does not affect the calculation of the trade receivables turnover ratio (which uses gross receivables).

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