ExpertEasy1 markMultiple Choice
CPA · Question 48 · Area 2: Financial Statement Analysis
A company has a Days Sales Outstanding (DSO) of 45 days. Its credit terms are Net 30. What does this indicate?
A company has a Days Sales Outstanding (DSO) of 45 days. Its credit terms are Net 30. What does this indicate?
Answer options:
A.
The company is collecting cash faster than expected.
B.
Customers are paying late, potentially indicating collection issues.
C.
The company has strict credit policies.
D.
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
B
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).
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...HardQ02A manufacturing company is analyzing its production process to identify bottlenecks. The process ...MediumQ03Management is using the COSO Enterprise Risk Management (ERM) framework to address a newly identi...MediumQ04RetailCo is evaluating two strategic initiatives using a Balanced Scorecard approach. <br/>Initia...MediumQ05A company is deciding between two mutually exclusive projects. <br/>Project X: NPV = $50,000, IRR...Medium