High School

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Twist Corporation has a current accounts receivable balance of $357,615. Credit sales for the year just ended were $2,940,600.

Is this statement true or false?

A. True
B. False

Answer :

Final answer:

Without knowing the industry average or historical data for comparison, it cannot be concluded whether the current accounts receivable balance is appropriate solelyThe correct option is b) False.

Explanation:

The correct answer is False because the accounts receivable turnover ratio needs to be calculated to determine if the accounts receivable balance is appropriate in relation to credit sales.

The accounts receivable turnover ratio is calculated by dividing credit sales by the average accounts receivable balance.

In this case, the accounts receivable turnover ratio is $2,940,600 / $357,615 ≈ 8.21.

A higher turnover ratio indicates that the company is collecting its receivables more frequently, which is favorable.

Therefore, without knowing the industry average or historical data for comparison, it cannot be concluded whether the current accounts receivable balance is appropriate solely based on the provided information.

The correct option is b) False.

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