Which statement 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.
D)DSO indicates the maximum number of days it takes a firm's customers to pay their bills.

Question

Quizplus · Accepted Answer

DSO (Days Sales Outstanding) measures the average number of days that a company takes to collect payment after a sale has been made. If a firm's DSO is 30 days and it sells on terms of 2/10, net 30, this means it expects payment within 30 days, but offers a discount for payment within 10 days. A DSO of 30 days in this scenario suggests that, on average, payments are being made at the end of the term, which could indicate that some accounts are past due, especially if customers are not taking advantage of the discount for early payment.

Which Statement Best Describes DSO