Question

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, including methods of invoicing and collecting past-due accounts, is indicated by the company's Consider the case of Stowe-Arts Holdings Co.: Stowe-Arts Holdings Co. has a very attractive credit policy, and none of its customers pays in cash when the firm makes a sale. Stowe-Arts Holdings Co. 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 Stowe-Arts Holdings Co. get from the customer? $138,750 $131,250 $148,500 $157,500 If the customer paid off the account after 15 days, Stowe-Arts Holdings Co. would receive Approximately 20% of Stowe-Arts Holdings Co.'s customers take advantage of the discount and pay on the 10th day. The remaining 80% take an average of 35 days to pay off their accounts. What is Stowe-Arts Holdings Co.'s days sales outstanding (DSO), or the average collection period? 34.5 days 27.0 days 30.0 days 28.5 days

Answer 1

The way company handles its credit accounts, including invoices and past due is indicated by credit policy or collection policy implemented in the organization.
Stowe Arts holding co offers 1% discount if payment is made within 10 days from date of sale
Customer has paid within 8 days and thus 1% cash discount would be provided
Amount received by Stowe Arts would be
Sales amount	$150,000
Cash discount @ 1%	$1,500
Cash collected	$148,500
If customer pays within 15 days then there is no cash discount and thus cash collected would be $150,000
Days sales outstanding	(0.20*10)+(0.80*35)
Days sales outstanding	30.0	days