Asked by Abhijith Jayakumar on Jun 26, 2024
Verified
Which statement best describes DSO and aging?
A) If a firm's volume of credit sales declines, then its DSO must also decline.
B) If a firm changes its credit terms from 1/20, net 40, to 2/10, net 60, the impact on sales can't be determined because the increase in the discount is offset by the longer net terms, which tends to reduce sales.
C) The DSO of a firm with seasonal sales can vary. While the sales per day calculation is usually based on the total annual sales, the accounts receivable balance will be high or low depending on the season.
D) An aging schedule is used to determine what portion of customers pay cash and what portion buy on credit.
DSO
Days Sales Outstanding; a measure of the average number of days that a company takes to collect revenue after a sale has been made.
Aging Schedule
A table that displays the amounts of receivables from customers, broken down into categories based on the time elapsed since the invoice date.
Seasonal Sales
Sales that are affected by the changes of the season, reflecting variations in consumer behavior and preferences at different times of the year.
- Understand the concept and calculation of Days Sales Outstanding (DSO) and its relation to firm's credit and collection policies.
Verified Answer
MW
muhammad waqas
Jun 30, 2024
Final Answer :
C
Explanation :
Seasonal sales can impact a firm's DSO and result in a higher or lower accounts receivable balance depending on the time of year. This can lead to fluctuations in the DSO metric. The other statements are incorrect or do not accurately describe the relationship between DSO and aging.
Learning Objectives
- Understand the concept and calculation of Days Sales Outstanding (DSO) and its relation to firm's credit and collection policies.