Day Sales Outstanding Calculation Example Help

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Meaning of Day Sales in Outstanding Calculation

 

Days’ sales outstanding ratio is also called as average collection period or days’ sales in receivables. It is used to measure the average number of days a business takes to collect its accounts receivables. It is an activity ratio and gives information about the efficiency of sales collection activities.
 

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Days Sales Outstanding is calculated using following formula

 

DSO = (Accounts Receivable/Credit Sales) × Number of Days
 

The Day Sales Outstanding shows how well companies can collect cash from their customers. It is profitable to convert sales into cash quickly because a lower value of Days Sales Outstanding is favorable whereas a higher value is unfavorable.
 

Day Sales Outstanding Calculation Explanation

 

Let’s understand this concept better with an example
 

Example: Calculate the Days Sales Outstanding from the following information
Net Credit Sales during the month: $64000
Average Accounts Receivable during the month: $32000.
Calculate the receivables turnover ratio.
 

Solution
 

Days Sales Outstanding = ($44000 / $64000) × 30 days = 20
Example

Total Receivables = 5,000,000
Total Credit Sales = 9,000,000
Days in Sales = 91
 

Solution: DSO= (5,000,000/9,000,000) x 91 = 50.55
 

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