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?

Question

Kasey Collier

Business

8 August, 06:25

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?

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Answers (1)

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Laci Mcconnell · Answer 1

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