Which of the Following Statements Best Describes Receivables Management

question 106

Multiple Choice

Which of the following statements best describes receivables management?

• A) A firm that makes 90% of its sales on credit and 10% for cash is growing at a constant rate of 10% annually. This firm will be able to keep its accounts receivable at the current level, since the 10% cash sales can be used to support the 10% growth rate.
• B) In managing a firm's accounts receivable, it is possible to increase credit sales per day yet still keep accounts receivable fairly steady, provided the firm can shorten the length of its collection period (its DSO).
• C) If a firm has a high percentage of accounts over 30 days old, this is a sure sign that the credit manager is not doing his or her job well.
• D) Since receivables and payables both result from sales transactions, a firm with a high receivables-to-sales ratio must also have a high payables-to-sales ratio.

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Definitions:

Implied Warranty

A legal assumption that a product will meet basic standards of quality and functionality, even if not expressly stated in a contract.

Ratify

To officially approve or confirm an agreement or treaty, making it formally valid.

Unauthorized Act

An action that is taken without official permission, approval, or authority.

Criminal Liability

The legal responsibility a person or entity has for committing an act that is considered a crime by law.