The options to the following questions are bolded.

9. Credit and collections management

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.

A companys (credit standards refer, collection policy refers, credit terms refer) to how the company handles its credit accounts. This includes methods of invoicing and collecting past-due accounts.

Consider the case of the Sharp Company. The financial managers at the Sharp Company have been monitoring the companys receivables and have compiled the following information:

	All sales are on credit. Sharps current terms are 2/10 net 30.
	20% of Sharps customers take advantage of the discount.
	Payments from its remaining customers are received, on average, in 53 days.
	Estimated credit sales are $170.000 million annually.
	Variable costs are 82% of gross sales.
	Credit evaluation and collection costs are 10% of gross sales.
	There are no bad debts to consider in this analysis.

Using the preceding information, fill in the blanks in the following analysis:

Credit Analysis
I. General Credit Policy Information
Credit terms	2/10 net 30
Days sales outstanding (DSO) for all customers	(39.1, 44.4, 45.0)
DSO for customers who take the discount (20%)	10 days
DSO for customers who forgo the discount (80%)	53 days
II. Annual Credit Sales and Costs ($ millions)
Gross sales	$170.000
Net sales	(172.720, 166.600, 136.000, 169.990)
Amount paid by discount customers	(30.600, 36.710, 36.720)
Amount paid by nondiscount customers	$136.000
Variable operating costs (82% of gross sales)	$139.40
Bad debts	$0.0
Credit evaluation and collection costs (10% of gross sales)	$17.00