Asked by Rounak Munoyat on Jul 04, 2024
Verified
The average collection period is calculated by dividing total sales by accounts receivable.It is an effective measure for internal use in monitoring a firm's collections.
Average Collection Period
The average number of days it takes for a business to receive payments owed by its customers for goods or services sold on credit.
Accounts Receivable
Funds that a company is entitled to receive from its customers for products or services that have been provided but not yet compensated for.
- Comprehend the procedure and value of Days Sales Outstanding (DSO) analysis in overseeing customer payments.
Verified Answer
DG
dejane grant
Jul 08, 2024
Final Answer :
False
Explanation :
The average collection period is calculated by dividing accounts receivable by average daily credit sales, not total sales. Additionally, while it is a useful measure for monitoring collections, it is typically used externally by lenders or investors to assess a company's liquidity and creditworthiness.
Learning Objectives
- Comprehend the procedure and value of Days Sales Outstanding (DSO) analysis in overseeing customer payments.