Question

15. Accounts receivable Effective credit management involves establishing credit standards for extending credit to customers, determining the company's terms of credit, and setting up procedures for invoicing and collecting past-due accounts. The following statement refers to a credit management policy. Select the best term to complete the sentence. How a company handles its credit accounts, indluding methods of invoicing and collecting past-due accounts, is indicated by the company's Consider the case of Ziff Corp.: Ziff Corp. has a very attractive credit policy, and none of its customers pays in cash when the firm makes a sale. Ziff Corp. sells to its customers on credit terms of 1/10, net 30 If a customer bought $150,000 worth of goods and paid the firm cash eight days after the sale, how much cash would Ziff Corp. get from the customer? O $148,500 O $123,750 O $127,500 O $157,50o If the customer paid off the account after 15 days, Ziff Corp. would receive Approximately 30% of Ziff Corp.'s customers take advantage of the discount and pay on the 10th day. The remaining 70% take an average of 35 days to pay off their accounts. what is Ziff Corp.'s days sales outstanding (DSO), or the average collection period? O 31.6 days 23.4 days O 30.3 days O 27.5 days

Answer 1

Is indicated by the company’s DSO (days sales outstanding)/Average Collection Period

Credit Term 1/10 net 30 means discount of 1 percent if payment made within 10 days, otherwise payment has to be made within 30 days with no discount

Cash collected = 150,000*99% = $148,500

If paid after 15 days, no discount will be given , amount will be $150,000

Average Collection Period = 0.3*10 + 0.7*35 = 27.5 days