Which of the following statements best describes DSO?
A) Other things held constant, the higher a firm's DSO, the better its credit department.
B) If a firm that sells on terms of net 30 changes its policy to 2/10, net 30, and if no change in sales volume occurs, then the firm's DSO will probably increase.
C) If a firm sells on terms of 2/10, net 30, and its DSO is 30 days, then its aging schedule would probably show some past due accounts.

Question

Quizplus · Accepted Answer

DSO stands for Days Sales Outstanding, which is a measure of how long it takes a firm to collect payment from its customers. If a firm's DSO is 30 days and it offers terms of 2/10, net 30, it means that most customers are taking advantage of the discount and paying within 10 days. This leaves a remainder of customers who are taking longer to pay, resulting in past-due accounts and an increase in the firm's DSO. Therefore, choice C is the best statement that describes DSO. Choice A does not necessarily hold true as a high DSO may indicate poor collection procedures. Choice B is incorrect as offering a discount for early payment would typically result in faster collections and a lower DSO.

Which of the Following Statements Best Describes DSO