Zubin Corporation experiences a decrease in sales and cost of goods sold, an increase in accounts receivable, and no change in inventory. If all else ... Accounting MCQs | Accounting MCQs

Zubin Corporation experiences a decrease in sales and cost of goods sold, an increase in accounts receivable, and no change in inventory. If all else is held constant, what is the total effect of these changes on the receivables turnover and inventory ratios?
Inventory Turnover
Receivables Turnover

Increased
Increased
Increased
Decreased
Decreased
Increased
Decreased
DecreasedShow Result

Correct - Your answer is correct.

Wrong - Your answer is wrong.

Detailed Answer

Answer (D) is correct. Cost of goods sold is the numerator of the inventory turnover ratio and average inventory is the denominator. A decrease in the numerator accompanied by an unchanged denominator results in a decrease in the overall ratio. Net credit sales is the numerator of the receivables turnover ratio and average net receivables is the denominator. A decrease in the numerator and an increase in the denominator result in a decrease in the overall ratio.