Which of the following statements best describes accounts receivable?
A) If a security analyst saw that a firm's DSO was higher than the industry average and was also increasing and trending still higher, this would be interpreted as a sign of strength.
B) If a firm increases its sales while holding its accounts receivable constant, then, other things held constant, its DSO will increase.
C) There is no relationship between the DSO and the ACP. These ratios measure entirely different things.
D) If a firm increases its sales while holding its accounts receivable constant, then, other things held constant, its days' sales outstanding will decline.

Question

Quizplus · Accepted Answer

Days' sales outstanding (DSO) measures the average number of days it takes a firm to collect payment from its customers. Accounts receivable is the amount of money owed to the firm by its customers for goods or services sold on credit. If a firm increases its sales while holding its accounts receivable constant, then the DSO will decline because the firm is collecting payments from customers more quickly. Therefore, choice D is the correct statement.

Which of the Following Statements Best Describes Accounts Receivable