Which of the following statements is CORRECT?
A) 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.
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)sufficiently.
C) Because of the costs of granting credit,it is not possible for credit sales to be more profitable than cash sales.
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.
E) Other things held constant,if a firm can shorten its DSO,this will lead to a higher current ratio.

Question

Quizplus · Accepted Answer

If a firm can increase credit sales per day and simultaneously reduce its collection period (DSO), it can keep accounts receivable steady while boosting sales. This is because the firm is collecting payments more quickly, allowing it to reinvest those funds into additional credit sales. This can lead to a growth in overall sales volume without a commensurate increase in accounts receivable.

Which of the Following Statements Is CORRECT