Question: 1. How is the receivables turnover ratio measured? What does this ratio indicate? Is a higher or lower receivables turnover preferable?
2. How is the average collection period of receivables measured? What does this ratio indicate? Is a higher or lower average collection period preferable?
3. How can effectively managing receivables benefit a company?
4. Which method, the percentage-of-receivables method or the percentage-of-creditsales method, is typically used in practice? Why?
5. Explain why the percentage-of-receivables method is referred to as the balance sheet method and the percentage-of-credit-sales method is referred to as the income statement method.