Which of the following statements is correct?
A) A firm that makes 90 percent of its sales on credit and 10 percent for cash is growing at a rate of 10 percent annually.If the firm maintains stable growth it will also be able to maintain its accounts receivable at its current level,since the 10 percent cash sales can be used to manage the 10 percent 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 if the firm can shorten the length of its collection period.
C) If a firm has a large percentage of accounts over 30 days old,it is a sign that the firm's receivables management needs to be reviewed and improved.
D) Because receivables and payables both result from sales transactions,a firm with a high receivables-to-sales ratio should also have a high payables-to-sales ratio.

Question

Quizplus · Accepted Answer

By shortening the length of the collection period, the firm can collect payments faster and therefore reduce the amount of outstanding accounts receivable, even if credit sales increase.

Answer: C 
 Accounts over 30 days old indicate that customers are not paying on time and the collection process needs to be reviewed and improved.

A is incorrect because while the 10 percent cash sales can help manage growth, it does not necessarily mean accounts receivable can be maintained at current levels. 
D is incorrect because while receivables and payables both come from sales transactions, the ratios can vary depending on the specific business and industry.

Which of the Following Statements Is Correct