DSO and Current Receivables Balance
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The Holland sofa company sells on terms of 3/10, net 30. Gross sales for the year are $1.2 million and the collection department estimates that 30 percent of customers pay on the 10th day and take discounts; 40 percent pay on the 30th day; and the remaining 30 percent pay; on average, 40 days after the purchase. Assume 365 days per year.
What is the DSO? What is the current receivables balance?
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Solution Summary
This question calculates the Days Sales Outstanding and the Current Receivables Balance for a company that sells some of its goods on credit. The credit terms are 3/10, net 30, which indicates that the firm gives a discount for payments that are received early. Using this information you are given two possible outcomes for this scenario.
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The Holland sofa company sells on terms of 3/10, net 30.
Gross sales for the year are $1.2 million and
the collection department estimates that
Group 1: 30 percent of customers pay on the 10th day and take discounts;
Group 2: 40 percent pay on the 30th day;
Group 3: the remaining 30 percent pay; on average, 40 days after the purchase.
Assume 365 days per year.
What is the DSO? What is the current receivables balance?
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