Question

Which of the following statements is correct?
a. If a firm increases its sales while holding its accounts receivable constant, then, other things held constant, its days' sales outstanding (DSO) will increase.
b.There is no relationship between the days' sales outstanding (DSO) and the average collection period (ACP). These ratios measure entirely different things.
c. A reduction in accounts receivable would have no effect on the current ratio, but it would lead to an increase in the quick ratio.
d. If a firm increases its sales while holding its accounts receivable constant, then, other things held constant, its days' sales outstanding will decline.

Answer 1

Answer:

d. If a firm increases its sales while holding its accounts receivable constant, then, other things held constant, its days' sales outstanding will decline.

Explanation:

As a company's sales increases or grow, its current assets also tend to increase. That is it will leaf to sales increase, the firm's inventories will increase, and purchases of inventories result in more accounts payable.

A company's sales objectives are simply the number of sales that it is trying to achieve