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

7. Receivables and Investments

Net Accounts Receivable: Aging of Receivables Method

Financial Accounting

7. Receivables and Investments

Net Accounts Receivable: Aging of Receivables Method

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Multiple Choice

A company can be judged to be collecting payments rapidly if it has a low number of which of the following?

Net credit sales

Allowance for doubtful accounts

Days sales outstanding (DSO)

Gross accounts receivable

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Verified step by step guidance

Understand the concept of Days Sales Outstanding (DSO): DSO is a financial metric that measures the average number of days it takes a company to collect payment after a sale has been made. A lower DSO indicates faster collection of receivables.

Identify the formula for DSO: The formula is \( \text{DSO} = \frac{\text{Accounts Receivable}}{\text{Net Credit Sales}} \times \text{Number of Days} \). This formula helps calculate the average collection period.

Analyze the relationship between DSO and payment collection: A low DSO means the company is efficient in collecting payments from customers, while a high DSO may indicate delays in payment collection or issues with credit policies.

Compare DSO with other metrics: Net credit sales, allowance for doubtful accounts, and gross accounts receivable are important metrics, but DSO specifically focuses on the time taken to collect payments, making it the most relevant indicator for judging payment collection speed.

Apply the concept: To evaluate a company's payment collection efficiency, calculate its DSO using the formula and compare it to industry benchmarks or historical data to determine if the company is collecting payments rapidly.