Which one of the following statements is correct?
A)An aging schedule helps identify those customers who are the most delinquent.
B)The percentage of total receivables that falls within a certain time period on an aging schedule will remain constant over time even if the firm has seasonal sales.
C)Normally firms call their delinquent customers prior to sending them a past due letter.
D)A constant average collection period over a period of time is cause for concern.
E)It is common practice when a customer files for bankruptcy to sell that customer's receivable at face value.

Question

Quizplus · Accepted Answer

An aging schedule is a report that categorizes a company's accounts receivable according to the length of time an invoice has been outstanding. By categorizing these accounts, the company can identify its most overdue accounts and prioritize its collection efforts towards those accounts. Therefore, option A is correct.

B is incorrect because the percentage of total receivables that falls within a certain time period on an aging schedule will change over time as more invoices become overdue.

C is incorrect because firms do not usually call their delinquent customers prior to sending a past due letter. Instead, they send a statement or past due notice as a reminder to the customer.

D is incorrect because a constant average collection period over a period of time indicates that the company is managing its accounts receivable effectively.

E is incorrect because it is not common practice to sell a bankrupt customer's receivable at face value. In fact, once a customer files for bankruptcy, the company may have to write off the receivable as a bad debt.

Which One of the Following Statements Is Correct