Question

. Is it true that, if a firm calculates its DSO, it has no need for an aging schedule? Explain.

9. What types of deficiencies exist when using DSO and an aging schedule to monitor collections over time?

10. What is the uncollected balances schedule?

11. Discuss the advantages of using the uncollected balance schedule instead of DSO or an aging schedule for monitoring receivables?

12. Describe the procedure for evaluating a change in credit policy using the income statement approach.

13. Do you think that credit policy decisions are made more on the basis of numerical analyses or on subjective judgment? Support your response.

14. Describe the incremental analysis approach for evaluating a proposed credit policy change. How can risk be incorporated into the analysis?

15. As a general rule, is it more likely that a company would increase its profitability if it tightened or loosened its credit policy? Explain.

16. Discuss the following ways that banks can calculate interest on loans:

• Simple interest –

• Discount interest –

• Add-on interest –  

17. What is a compensating balance?

18. What effect does a compensating balance requirement have on the effective interest rate on a loan?

19. List and discuss some factors to consider when choosing a bank?

Please answer all questions!!!

Answer 1

8]

No, it is not true that if a firm calculates its DSO, it has no need for an aging schedule.

The DSO provides a single number, which represents the average of the days outstanding of all accounts.

However, the aging schedule breaks up the accounts into categories based on number of days outstanding.

Thus, the aging schedule contains more and better information regarding the accounts receivable. The accounts can be analysed based on categories such as less than 30 days, more than 30 days, more than 90 days etc.

Therefore, the aging schedule is required even if DSO is calculated.