A company has a Days Sales Outstanding (DSO) of 45 days. Its credit terms are Net 30. What does this indicate?

Answer options:

The company is collecting cash faster than expected.

Customers are paying late, potentially indicating collection issues.

The company has strict credit policies.

The company is efficiently managing receivables.

How to approach this question

Compare Actual (45) to Target (30). Actual > Target = Bad (Slow collection).

Full Answer

B.Customers are paying late, potentially indicating collection issues.✓ Correct

DSO measures the average time to collect receivables. A DSO significantly higher than the credit terms (45 vs 30) indicates customers are not paying on time, which hurts cash flow.

Common mistakes

Thinking high DSO is good (it's bad).

Question 47 All questions Question 49

Practice the full CPA BAR Practice Exam

50 questions · hints · full answers · grading

More questions from this exam

Q01TechGlobal Inc. is evaluating the performance of its European division using Economic Value Added...Hard Q02A manufacturing company is analyzing its production process to identify bottlenecks. The process ...Medium Q03Management is using the COSO Enterprise Risk Management (ERM) framework to address a newly identi...Medium Q04RetailCo is evaluating two strategic initiatives using a Balanced Scorecard approach. <br/>Initia...Medium Q05A company is deciding between two mutually exclusive projects. <br/>Project X: NPV = $50,000, IRR...Medium

View all 50 questions →