Question

TCBW last year had an average collection period (days sales outstanding) of 33 days based on accounts receivable of $350,000. All of the firm's sales are made on credit. The firm expects sales this year to be the same as last year. However, the company has begun a new credit policy that should lower the average collection period to 28 days. If the new average collection period is attained, what will the firm's accounts receivable balance equal

Answer 1

Answer:

$296,969.70

Explanation:

Days of sales outstanding = number of days in a period / receivables turnover

Receivables turnover = revenue / average receivables

33 = 365 / receivables turnover

receivables turnover = 11.060606

11.060606 = revenue / $350,000

revenue = $3,871,212.12

with the new policy and same revenue :

28 = 365  / receivables turnover

receivables turnover = 13.035714

13.035714 = $3,871,212.12 / average receivables

= $296,969.70