Question

Leyton Lumber Company has sales of $8 million per year, all on credit terms calling for payment within 30 days, and its accounts receivable are $1.8 million. Assuming 365 days in a year, what is Leyton's Days Sales Outstanding (DSO)? Do not round intermediate calculations. Round your answer to two decimal places.

Answer 1

Leyton Lumber Company's Days Sales Outstanding (DSO) is calculated as ($1.8 million accounts receivable / $8 million annual sales) × 365 days, resulting in 82.125, which rounds to 82.13 days when rounded to two decimal places.

Step-by-step explanation:

To calculate Leyton Lumber Company's Days Sales Outstanding (DSO), also known as the average collection period, we need to use the following formula:

DSO = (Accounts Receivable / Annual Sales) × Number of Days in Year

In this case, the accounts receivable are $1.8 million and the annual sales are $8 million. Therefore, the calculation is as follows:

DSO = ($1.8 million / $8 million) × 365 days

DSO = 0.225 × 365 days

DSO = 82.125 days

When we round to two decimal places, Leyton Lumber Company's DSO is 82.13 days.

Days sales outstanding (DSO) is the average number of days it takes a company to receive payment for a sale. A high DSO number suggests that a company is experiencing delays in receiving payments, which can result in a cash flow problem