If a firm's terms are 2/10,net 30 days,and its DSO is 28 days,we can be certain that the credit department is functioning efficiently and that the percentage of past due accounts is minimal.

Question

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The statement in the question does not provide enough information to determine whether the credit department is functioning efficiently or whether the percentage of past due accounts is minimal. The fact that the terms are 2/10, net 30 days indicates that the firm offers a discount of 2% for payment within 10 days and expects payment within 30 days. The DSO, or days sales outstanding, of 28 days means that on average, it takes customers 28 days to pay their invoices. While a lower DSO may indicate efficient credit management, it could also indicate lax credit policies that result in many customers taking the full 30 days to pay. Similarly, while the terms of 2/10, net 30 days may encourage early payment, they do not guarantee it, and it is possible that a significant percentage of accounts are past due. Therefore, we cannot assume that the credit department is functioning efficiently, and we cannot conclude anything about the percentage of past due accounts based on the information given in the question.

If a Firm's Terms Are 2/10,net 30 Days,and Its DSO