8. 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.

Question: The conditions of the credit sale, including cash discounts and due dates, are indicated by the company's ?.

A. Terms of Credit

B. Collection Policy

C. Credit Standards

Consider the case of Wizard Co.:

Wizard Co. has a very attractive credit policy, and none of its customers pays in cash when the firm makes a sale. Wizard Co. sells to its customers on credit terms of 3/10, net 30.

Question: If a customer bought $125,000 worth of goods and paid the firm cash eight days after the sale, how much cash would Wizard Co. get from the customer? (Note: Round your answer to the nearest whole dollar.)

A. $112,500

B. $131,250

C. $121,250

D. $109,375

Question: If the customer paid off the account after 15 days, Wizard Co. would receive ? . (Note: Round your answer to the nearest whole dollar.)

A. $125,000

B. $131,250

C. $109,375

D. $112,500

QUESTION:

Approximately 20% of Wizard 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 Wizard Co.'s days sales outstanding (DSO), or the average collection period? (Note: Do not round intermediate calculations. Round your answer to one decimal place.)

A. 34.5 days

B. 30.0 days

C. 31.5 days

D. 28.5 days