Question

Faldo Corp sells on terms that allow customers 45 days to pay for merchandise. Its sales last year were $435,000, and its year-end receivables were $60,000. If its DSO is less than the 45-day credit period, then customers are paying on time. Otherwise, they are paying late. By how much are customers paying early or late? Base your answer on this equation: DSO - Credit Period = Days early or late, and use a 365-day year when calculating the DSO. A positive answer indicates late payments, while a negative answer indicates early payments.

Answer 1

Answer:

DSO is 50.34 days and late payment by 5.34 days

Explanation:

In this question, we use the day's sales outstanding formula which is shown below:

Days sales outstanding = (Accounts receivable ÷ Net credit Sales) × total number of days in a year

= ($60,000 ÷ $435,000) × 365 days

= 0.1379 × 365 days

= 50.34 days

Now, the customer paying early or late equals to

= DSO - Credit period

= 50.34 days - 45 days

= 5.34 days

The amount indicates a positive answer which reflects the late payment