Question

Which of the following best represents a positive product of a lower number of days’ sales in receivables ratio? A. collection of receivables is quick, and cash can be used for other business expenditures B. collection of receivables is slow, keeping cash secured to receivables C. credit extension is lenient D. the lender only lends to the top 10% of potential creditors

Name: Problem 11, Chapter 9: Principles of Accounting Volume 1: Financial Accounting
Uploaded: 2020-05-20T06:01:17-08:00
Duration: 4 min 32 s
Channel: Puneet Prajapati
Description: Which of the following best represents a positive product of a lower number of days’ sales in receivables ratio? A. collection of receivables is quick, and cash can be used for other business expenditures B. collection of receivables is slow, keeping cash secured to receivables C. credit extension is lenient D. the lender only lends to the top 10% of potential creditors

   Which of the following best represents a positive product of a lower number of days’ sales in receivables ratio?
A. collection of receivables is quick, and cash can be used for other business expenditures
B. collection of receivables is slow, keeping cash secured to receivables
C. credit extension is lenient
D. the lender only lends to the top 10% of potential creditors

Principles of Accounting Volume 1: Financial Accounting

Mitchell Franklin,… 1st Edition

Chapter 9, Problem 11

Instant Answer

Solved by Expert Puneet Prajapati

05/20/2020

Step 1

This ratio measures the average number of days that a company takes to collect revenue after a sale has been made. A lower ratio is more favorable because it means the company collects its receivables more quickly. Show more…

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Which of the following best represents a positive product of a lower number of days’ sales in receivables ratio? A. collection of receivables is quick, and cash can be used for other business expenditures B. collection of receivables is slow, keeping cash secured to receivables C. credit extension is lenient D. the lender only lends to the top 10% of potential creditors

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Key Concepts

Days Sales in Receivables Ratio

This metric measures the average number of days it takes for a company to collect its sales receivables. A lower ratio indicates that receivables are being collected quickly, enhancing liquidity and providing the company with more effective use of cash for operational needs and investments.

Receivables Collection Efficiency

Efficiency in collecting receivables is a key aspect of financial management. Quick collection improves cash flow by reducing the time capital is tied up in credit, thereby minimizing the risk of defaults and reducing the need for external financing.

Working Capital Management

Managing working capital effectively involves optimizing receivables, payables, and inventory. Fast receivables collection reduces the operating cycle, improves liquidity, and supports the overall financial health of the business by ensuring that cash is available for other critical expenditures.

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