Which statement about accounts receivable is correct?
A) If a security analyst saw that a firm's DSO was higher than the industry average and was also increasing and trending still higher, this would be interpreted as a sign of strength.
B) If a firm increases its sales while holding its accounts receivable constant, then, other things held constant, its DSO will increase.
C) There is no relationship between the DSO and the ACP. These ratios measure entirely different things.
D) If a firm increases its sales while holding its accounts receivable constant, then, other things held constant, its days' sales outstanding will decline.

Question

Quizplus · Accepted Answer

Days' sales outstanding (DSO) is a measure of the average number of days it takes a firm to collect its accounts receivable. If a firm increases its sales while holding its accounts receivable constant, it means that the firm is collecting its accounts receivable faster. Therefore, other things held constant, its DSO will decline.

Which Statement About Accounts Receivable Is Correct