Question 6. If accounts receivable turnover (credit sales/receivables) was 7.1 times last year compared to only 5.6 times in the current year, it is possible that there were: A. unrecorded credit sales in the current year B. unrecorded cash receipts las

To analyze the situation with the accounts receivable turnover ratio, we need to consider what could cause a decline in this ratio from 7.1 times to 5.6 times. The accounts receivable turnover ratio is calculated as: \[ \text{Accounts Receivable Turnover} = \frac{\text{Credit Sales}}{\text{Average Accounts Receivable}} \] A decrease in the turnover ratio indicates either a decrease in credit sales or an increase in accounts receivable (or both). Let’s evaluate the options: A. **Unrecorded credit sales in the current year**: If there were unrecorded credit sales, the credit sales figure would be lower than it should be, leading to a lower accounts receivable turnover ratio. B. **Unrecorded cash receipts last year**: Unrecorded cash receipts from last year would not directly affect the current year’s accounts receivable turnover ratio. This option does not explain the decrease. C. **More thorough credit investigations made by the company late last year**: If credit investigations were more thorough, it may have led to fewer sales or stricter credit terms, possibly resulting in lower credit sales candidacy. This could lead to a lower turnover ratio, but it is not a direct cause. D. **Fictitious sales in the current year**: If there were fictitious sales in the current year, the credit sales reported would not genuinely reflect actual sales. This would lead to high accounts receivable without corresponding cash inflow, causing the turnover ratio to decrease. Given this analysis, the best option to explain the decrease in the accounts receivable turnover ratio from 7.1 to 5.6 in the current year is: **A. unrecorded credit sales in the current year**. This option directly affects the turnover ratio by reducing the numerator (credit sales) relative to the denominator (accounts receivable), leading to a lower turnover value.