Which of the following statements best describes DSO and aging?
A) If a firm's volume of credit sales declines, then its DSO must also decline.
B) If a firm changes its credit terms from 1/20, net 40, to 2/10, net 60, 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 calculation 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.

Question

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DSO (Days Sales Outstanding) measures the average number of days it takes a company to collect payment from its customers after a sale has been made. DSO can vary depending on the seasonality of a business, as sales may be higher or lower at certain times of the year, leading to higher or lower accounts receivable balances. Option A is incorrect because a decline in credit sales could lead to a longer DSO if customers take longer to pay their outstanding balances. Option B is incorrect because changing credit terms can impact sales, but the statement is incomplete and contradictory. Option D is incorrect because an aging schedule is used to categorize accounts receivable by age and determine the likelihood of payment, but it doesn't determine what portion of customers pay cash or buy on credit.

Which of the Following Statements Best Describes DSO and Aging