Effective credit management involves establishing credit standards for extending credit to customers, determining the companys 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 companys ________.

Consider the case of Water and Power Co.:

Water and Power Co. has a very attractive credit policy, and none of its customers pays in cash when the firm makes a sale. Water and Power Co. sells to its customers on credit terms of 2/10, net 30.

If a customer bought $200,000 worth of goods and paid the firm cash eight days after the sale, how much cash would Water and Power Co. get from the customer? (Note: Round your answer to the nearest whole dollar.)

$196,000

$200,000

$165,000

$170,000

If the customer paid off the account after 15 days, Water and Power Co. would receive _______. (Note: Round your answer to the nearest whole dollar.)

Approximately 30% of Water and Power Co.s customers take advantage of the discount and pay on the 10th day. The remaining 70% take an average of 35 days to pay off their accounts. What is Water and Power Co.s days sales outstanding (DSO), or the average collection period? (Note: Do not round intermediate calculations. Round your answer to one decimal place.)

27.5 days

30.3 days

22.0 days

24.8 days