Question

Asset Management Ratios Corn Products, Corp. ended the year 2008 with an average collection period of 45 days. The firm's credit sales for 2008 were $9.5 million. What is the year-end 2008 balance in accounts receivable for Corn Products? (Consider a 365 days a year.)

Answer 1

Answer:

The ending balance of accounts receivable is 1,171,393

Explanation:

Given,

Average collection period = 45 days

Net credit sales = $9.5 million.

We know,

Accounts receivable turnover = Net Credit Sales/Average Accounts Receivable .............(i)

Again, we know,

Average collection period = 365 days/Accounts Receivable Turnover

or, 45 days = 365 days/Accounts Receivable Turnover

or, Accounts Receivable Turnover = (365/45) days

or, Accounts Receivable Turnover = 8.11 times

Putting the value of Accounts Receivable Turnover in equation (i),

8.11 times = $9.5 million/Average Accounts Receivable

Average Accounts Receivable = $9,500,000/8.11

Therefore, Average Accounts Receivable = $1,171,393

Since there is no beginning Accounts Receivable information, $1,171,393 is the year-end accounts receivable.