Which of the following statements is CORRECT?
A) Other things held constant,the higher a firm's days sales outstanding (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 the firm probably has some past due accounts.
D) If a firm sells on terms of net 60,and if its sales are highly seasonal,with a sharp peak in December,then its DSO as it is typically calculated (with sales per day = Sales for past 12 months/365)would probably be lower in January than in July.
E) If a firm changed the credit terms offered to its customers from 2/10,net 30 to 2/10,net 60,then its sales should increase,and this should lead to an increase in sales per day,and that should lead to a decrease in the DSO.

Question

Quizplus · Accepted Answer

Statement C is correct because if a firm's Days Sales Outstanding (DSO) is equal to the net terms (30 days in this case), it indicates that, on average, it takes the full payment term for the firm to collect its receivables. This suggests that some customers are likely paying later than the discount period (the first 10 days), and some could indeed be past due, especially if the average collection period matches the net term.

Which of the Following Statements Is CORRECT