Ch $16-$ Assignment $-$ Working Capital Management

Effective credit management involves establishing credit standards for extending credit to customers, determining the company's credit terms, 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 company's credit standards grad.

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 $\frac{3}{10},$ net $30.$

If a customer bought $$150,000$ worth of goods and paid the firm cash eight days after the sale, how much cash would Water and Pow the customer?

$$150,000$

$$138,750$

$$145,500$

$$120,000$

If the customer paid off the account after $15$ days, Water and Power Co$.$ would receive

Approximately $35\%$ of Water and Power Co$.\text{'}$s customers take advantage of the discount and pay on the $10$ th day. The remaining $65\%$ take an average of $35$ days to pay off their accounts. What is Water and Power Co$.\text{'}$s days sales outstanding $($DSO$),$ or the average collection period?

$31\mathrm{.}50$ days

$22\mathrm{.}31$ days

$26\mathrm{.}25$ days