I picked up a book called "Quilt your Stash!" from the publisher of Threads. Projects from Joan Ford's "Scrap Therapy" program. She uses 2", 3.5" and 5".

I cut mine into strips. 2 1/2, 4 1/2, 5 1/2and 6 1/2.. I found this is easier to work with and store than squares. The other advantage is that you are not limited to squares but could also do rectangles.

I don't precut my scraps. If doing a scrap quit with strips it is easier to use long strips sewn together then cut to the size you want. Same goes for making a quilt with squares. The strips are much easier to sew together then cut them into squares. The size will be much more accurate. Just what works for me.