Given annual credit sales of $1,200,000 and average accounts receivable of $150,000, calculate DSO (in days) using 365 days year.

• A. 50 days
• B. 43.2 days
• C. 45.6 days
• D. 46.5 days

Answer: (C)

DSO tells you, on average, how long it takes to collect on credit sales. The formula is DSO = (Average accounts receivable / Credit sales) × days in the period. With 365 days in a year, average AR of 150,000 and annual credit sales of 1,200,000 gives: 150,000 / 1,200,000 = 0.125, and 0.125 × 365 = 45.625 days. That rounds to about 45.6 days. So the DSO is 45.6 days, meaning it takes roughly 46 days to collect receivables.