Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

14. Financial Statement Analysis

Ratios: Average Collection Period (Days Sales Outstanding)

Financial Accounting

14. Financial Statement Analysis

Ratios: Average Collection Period (Days Sales Outstanding)

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Multiple Choice

Kelso's has an average collection period (Days Sales Outstanding) of 49 days. How should this be interpreted?

Kelso's pays its suppliers 49 days after receiving goods.

Kelso's generates sales every 49 days.

Kelso's takes 49 days to sell its entire inventory.

On average, it takes Kelso's 49 days to collect payment from its customers after a sale is made.

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Verified step by step guidance

Understand the concept of the Average Collection Period (Days Sales Outstanding). It measures the average number of days it takes a company to collect payment from its customers after a sale is made. This is a key metric in assessing a company's liquidity and efficiency in managing receivables.

Analyze the given information: Kelso's has an average collection period of 49 days. This means that, on average, it takes Kelso's 49 days to collect payment from its customers after a sale is made.

Evaluate the provided options: The first option refers to the time Kelso's takes to pay its suppliers, which is unrelated to the average collection period. The second option refers to the frequency of generating sales, which is also unrelated. The third option refers to inventory turnover, which is a different metric entirely.

Identify the correct interpretation: The correct interpretation is that Kelso's takes 49 days, on average, to collect payment from its customers after a sale is made. This aligns with the definition of the average collection period.

Conclude by emphasizing the importance of this metric: A shorter average collection period indicates that the company is efficient in collecting receivables, while a longer period may suggest potential issues with credit policies or customer payment behavior.