Which of the following statements is correct?
A) If a firm's volume of credit sales declines,then its DSO will also decline.
B) If a firm changes its credit terms from 1/20,net 40 days,to 2/10,net 45 days,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 because while the sales per day figure 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.
E) Aging schedules can be constructed from the summary data provided in the firm's financial statements.

Question

Quizplus · Accepted Answer

The statement correctly explains how seasonal sales can impact the DSO of a company. The accounts receivable balance will vary depending on the season, which will impact the DSO. Option A is incorrect because a decline in credit sales can increase the DSO, not decrease it. Option B is incorrect because an increase in the discount and longer net terms can both impact sales, making it impossible to determine the overall effect. Option D is incorrect because aging schedules are used to determine the age of accounts receivable, not the portion of customers who pay cash or buy on credit. Option E is incorrect because aging schedules require individual account information, not summary data.

Which of the Following Statements Is Correct