Question

TCBW last year had an average collection period (days sales outstanding) of 36 days based on accounts receivable of $380,000. All of the firm's sales are made on credit. The firm expects sales this year to be the same as lat year. However, the company has begun a new credit policy that should lower the average collection period to 26 days. If the new average collection period is attained, what will the firm's accounts receivable balance equal?

Answer 1

Answer:

The firm's accounts receivable balance is $274,444.39

Explanation:

In this question, we have to apply the daily sales outstanding ratio which is shown below:

Days sales outstanding = (Accounts receivable ÷ Total credit sales) × total number of days in a year

36 days = ($380,000 ÷ total credit sales) × 365 days

So, the total credit sales = ($380,000) × (365 days ÷ 36 days)

                                        =  $3,852,777

Now apply the same formula, So the account receivable equal to

= $3,852,777 × (26 days ÷ 365 days)

= $274,444.39