Question

Greene Sisters has a DSO of 20 days. The company’s average daily sales are $20,000. What is the level of its accounts receivable? Assume there are 365 days in a year. Ehrhardt, Michael C.. Corporate Finance: A Focused Approach (MindTap Course List) (p. 129). Cengage Learning. Kindle Edition.

Answer 1

Answer: $400,000

Explanation:

Days Sales Outstanding is used by a firm to estimate the amount of its accounts receivable.

DSO (Days Sales Outstanding) = Accounts Receivables/Average Sales per day

Where DSO= 20 days

Average sales per day= $20,000

Accounts receivable (AR) =?

20=AR/20000

Cross multiply to make AR the subject of the formula

Accounts Receivables = 20 x 20000

AR=$400,000.