GK
BUSINESS MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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study the effectiveness of accounts receivable collection
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determine which accounts payable to pay first
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decide when equipment needs to be replaced
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increase the credit limit for customers who have difficulty paying their accounts
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Detailed explanation-1: -Accounts receivable aging is a periodic report that categorizes a company’s accounts receivable according to the length of time an invoice has been outstanding. It is used as a gauge to determine the financial health and reliability of a company’s customers.
Detailed explanation-2: -The aging schedule can be used to identify the customers that are extending the time it takes to collect your accounts receivable. If the bulk of the overdue amount in receivables is attributable to one customer, then steps can be taken to see that this customer’s account is collected promptly.
Detailed explanation-3: -The collection effectiveness index (CEI) measures how well an organization’s accounts receivable are being collected, while the days sales outstanding (DSO) metric measures the average number of days it takes for a company to collect payment on its sales.
Detailed explanation-4: -For example, if payment terms are net 15 days, then the date range in the left-most column should only be for the first 15 days. This drops 16-day old invoices into the second column, which highlights that they are now overdue for payment.