Question

The number of days' sales uncollected:

1) Measures a company's ability to pay its bills on time.
2) Measures a company's debt to income.
3) Is used to evaluate the liquidity of receivables.
4) Is calculated by dividing accounts receivable by sales.

Answer 1

The number of days' sales uncollected measures a company's ability to collect money owed by customers based on the liquidity of its receivables. It is calculated by dividing accounts receivable by sales. Correct option is 3)

Step-by-step explanation:

The number of days' sales uncollected is used to evaluate the liquidity of receivables. It measures how long it takes for a company to collect the money owed from its customers.

The calculation is done by dividing accounts receivable (the money owed by customers) by sales (the total amount of goods or services sold).

For example, if a company has $100,000 in accounts receivable and $500,000 in sales, the number of days' sales uncollected would be calculated as:

1. Calculation: $100,000 / $500,000 = 0.2
2. 0.2 multiplied by 365 days = 73 days

Therefore, it would take the company approximately 73 days to collect the money owed by its customers.