IAS 1 Receivables Collection Flashcards
What aids a business’ cash flow
A short credit period for receivables
Example of where a business has a strategy for a high credit period?
Business selling sofas might offer long credit period to achieve higher sales
What if receivables are shorter compared to prior period?
It could indicate better credit control or settlement discounts being offered to collect cash more quickly
An increase in receivables collection?
A deterioration in credit control or bad debts
What should be excluded from the denominator?
Cash sales
Why does receivables collection only use credit sales?
As they generate trade receivables
A collection period significantly in excess?
Might be representative of poor management
Retail company and credit sales?
Majority of sales are made with immediate payment
A wholesaler or distribution company and credit sales?
More likely to offer credit terms of 30 to 60 days because of large amount of receivables
Exporting company and credit sales?
Large amount of receivables, credit terms well in excess of 30 days
What if collection period is increasing from year to year?
Indicative of a poorly managed credit control function
Increasing collection period’s effect on cash flow?
Paying for supplies upfront because of bad credit terms
