The number of days' sales uncollected is calculated by:
A) Dividing accounts receivable by net sales.
B) Dividing accounts receivable by net sales and multiplying by 365.
C) Dividing net sales by accounts receivable.
D) Dividing net sales by accounts receivable and multiplying by 365.
E) Multiplying net sales by accounts receivable and dividing by 365.

Question

Quizplus · Accepted Answer

The number of days' sales uncollected is calculated by dividing accounts receivable by net sales and multiplying by 365. This measures the average number of days it takes for a company to collect payments from its customers after a sale is made. Option A is incorrect because it only calculates the ratio of accounts receivable to net sales, without taking into account the time it takes to collect the receivables. Option C is incorrect because it would give the inverse result of what is being measured. Option D is incorrect because it also gives the inverse result, and multiplying by 365 is unnecessary. Option E is incorrect because it is nonsensical to multiply net sales by accounts receivable when trying to calculate the number of days' sales uncollected.

The Number of Days' Sales Uncollected Is Calculated By