Question

10.  Problem 4.20 (DSO and Accounts Receivable)

eBook Problem Walk-Through

Ingraham Inc. currently has $645,000 in accounts receivable, and its days sales outstanding (DSO) is 65 days. It wants to reduce its DSO to 30 days by pressuring more of its customers to pay their bills on time. If this policy is adopted, the company's average sales will fall by 10%. What will be the level of accounts receivable following the change? Assume a 365-day year. Do not round intermediate calculations. Round your answer to the nearest dollar.

$  

Answer 1

Accounts receivable = (days sales outstanding*total sales)/365

$645,000 = 65* total sales/365

Total sales=3,621,923.077

Total sales decreases by 10%

3,621,923.077-10% (3,621,923.077)=3,259,730.769

Accounts receivable = (days sales outstanding*total sales)/365

Accounts receivable = (30*3,259,730.769)/365

Accounts receivable = $267,923.0769

Level of accounts receivable following the change = $$267,923

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