What does an average collection period of 30.4 days indicate about a company's accounts receivable management?
Added by Patricia C.
Step 1
** Show more…
Show all steps
Your feedback will help us improve your experience
Breanna Ollech and 77 other Principles of Accounting educators are ready to help you.
Ask a new question
Labs
Want to see this concept in action?
Explore this concept interactively to see how it behaves as you change inputs.
Recommended Videos
Bravo Inc. offers sales terms of 30 days, but as sales have grown, collection of accounts receivable has gone from an average of 28 days to 38 days. To address this, two new collections staff have been employed, doubling the collection team. As a result, the business is projecting that receivables will be collected on an average of 36 days next year. What is your assessment of this assumption? a) This assumption is plausible. b) This assumption is overly conservative. c) This assumption is too aggressive.
Breanna O.
Milwaukee Surgical Supplies, Inc., sells on terms of 3/10, net 30. Gross sales for the year are $1,200,000, and the collections department estimates that 30 percent of the customers pay on the tenth day and take discounts, 40 percent pay on the thirtieth day, and the remaining 30 percent pay, on average, 40 days after the purchase. (Assume 360 days per year.) a. What is the firm's average collection period? b. What is the firm's current receivables balance? c. What would be the firm's new receivables balance if Milwaukee Surgical toughened up on its collection policy, with the result that all non-discount customers paid on the thirtieth day? d. Suppose that the firm's cost of carrying receivables was 8 percent annually. How much would the toughened credit policy save the firm in annual receivables carrying expense? (Assume that the entire amount of receivables had to be financed.)
Akash M.
Hakuna Inc. sells on terms of 3/10, net 30 days. Gross sales for the year are P2,400,000 and the collections department estimates that 30% of the customers pay on the 10th day and take discounts; 40% pay on the 30th day; and the remaining 30% pay, on average, 40 days after the purchase. Assuming 360 days per year, what is the average collection period? a. 40 days. b. 15 days. c. 20 days d. 27 days.
Jennifer S.
Recommended Textbooks
Horngren’s Cost Accounting
Cost Accounting A Managerial Emphasis
Principles of Accounting Volume 1: Financial Accounting
Transcript
18,000,000+
Students on Numerade
Trusted by students at 8,000+ universities
Watch the video solution with this free unlock.
EMAIL
PASSWORD