Which of the following statements is most 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 60 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. 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 DSO of a firm with seasonal sales can vary, as the accounts receivable balance will be high or low depending on the season. The statement in option A is incorrect as a decline in credit sales may lead to a decrease in DSO or an increase, depending on the collection efficiency. Option B is also incorrect as the impact on sales cannot be determined solely based on changes in credit terms. Option D is incorrect as aging schedules are used to determine how long customers have been delinquent in paying, not whether they pay cash or credit. Option E is also incorrect as aging schedules require the specific information of each customer's account.

Which of the Following Statements Is Most Correct