A receivable classified as current on the statement of financial position is expected to be collected

within *

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a. The current operating cycle.

b. 1 year.

c. The current operating cycle or 1 year, whichever is longer.

d. The current operating cycle or 1 year, whichever is shorter.

TRIANGLE Company has the following data. What is the firm's cash conversion cycle? Inventory
conversion period =50 days Receivables collection period =17 days Payables deferral period =25 days *

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42

Which of the following items is not included in determining the desired level of accounts receivable? *

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a. net sales

b. desired number of accounts receivable

c. number of days in a year

d. answer not given

Which of the following statements is CORRECT? *

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A firm that makes 90% of its sales on credit and 10% for cash is growing at a constant rate of 10%
annually. Such a firm will be able to keep its accounts receivable at the current level, since the 10% cash
sales can be used to finance the 10% growth rate.

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) sufficiently.
Because of the costs of granting credit, it is not possible for credit sales to be more profitable than cash
sales.

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.

Statement I - For a zero-growth firm, it is possible to increase the percentage of sales that are made on
credit and still keep accounts receivable at their current level, provided the firm can shorten the length
of its collection period sufficiently. Statement II - A firm's collection policy, i.e., the procedures it follows
to collect accounts receivable, plays an important role in keeping its average collection period short,
although too strict a collection policy can reduce profits due to lost sales. *

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a. Both statements are true

b. Only Statement I is true

c. Only Statement II is true

d. Both statements are false

Statement I - 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. Statement II - Dimon Products'
sales are expected to be P5 million this year, with 90% on credit and 10% for cash. Sales are expected to
grow at a stable, steady rate of 10% annually in the future. Dimon's accounts receivable balance will
remain constant at the current level, because the 10% cash sales can be used to support the 10% growth
rate, other things held constant. *

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a. Both statements are true

b. Only Statement I is true

c. Only Statement II is true

d. Both statements are false