Answer :
To calculate Days Sales Outstanding (DSO) when you have 45 days and an Accounts Receivable (AR) of $1,483,181, you would typically first need the total credit sales for the period you are examining. However, since your question directly gives you the DSO as 45 days, this calculation would be more about understanding the relationship between DSO, AR, and credit sales, rather than calculating DSO from scratch.
In general, DSO is calculated using the formula:
[tex]\text{DSO} = \left( \frac{\text{Accounts Receivable}}{\text{Total Credit Sales}} \right) \times \text{Number of Days in Period}[/tex]
Given:
- DSO = 45 days
- Accounts Receivable (AR) = $1,483,181
To find out the Total Credit Sales, you can rearrange the formula:
[tex]\text{Total Credit Sales} = \frac{\text{Accounts Receivable}}{\text{DSO}} \times \text{Number of Days in Period}[/tex]
Assuming that 'Number of Days in Period' typically refers to a month (approximately 30 days), or you can consider a standard period length such as 30 days for one month or 90 days for a quarter. However, since DSO = 45 days is given directly, let's assume our interest is ensuring we understand the impact of this calculation:
The formula implies that your Accounts Receivable reflects 45 days worth of credit sales. The DSO figure tells you that it takes approximately 45 days on average to collect payments after a sale is made. Understanding this helps businesses analyze and manage their cash flow and determine how effectively they are managing their credit sales and collections process.
