All 21 Aging Analysis questions
More in Aging Analysis
What does the 90+ days bucket typically signify and how is it treated? How do you read an AR aging summary at a glance? What does it mean when receivables are 'current' versus 'past due'? What is a weighted-average days overdue and why is it useful? What is Days Payable Outstanding (DPO) and how does it relate to aging? What is the cash conversion cycle and how do AR/AP aging feed it? How is aging used to prioritize collections activity? How do you reconcile the aging report to the general ledger control account? What red flags can an aging report reveal? What is 'best possible DSO' and how does it differ from standard DSO?
Advertisement
Accounts Payable & Receivable › Aging Analysis

How is Days Sales Outstanding (DSO) calculated and what does it indicate?

Intermediate

Answer

DSO measures the average days to collect receivables: (Accounts Receivable / Total Credit Sales) x number of days in the period. A rising DSO signals slower collections, looser credit, or customer distress; a falling DSO indicates faster cash conversion. It's a core AR efficiency and working-capital metric.
DSO = (AR / Credit Sales) x Days
  = (300,000 / 1,800,000) x 90 = 15 days for the quarter.
Real-world example A jump in DSO from 35 to 48 days prompts a review that finds a major customer stretching payments.

Common follow-ups: What causes DSO to rise? | What is a 'good' DSO?

Credit Control Collections & Bad Debts Aging Analysis
All 21 Aging Analysis questions