Ingraham Inc. currently has $895,000 in accounts receivable, and its days sales outstanding (DSO) is 71 days. It wants to reduce its DSO to 25 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 20%. 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 cent.
If DSO is 71 days:
Days Sales Outstanding = 365 * Accounts Receivable / Annual
Sales
71 = 365 * $895,000 / Annual Sales
Annual Sales = $4,601,056.3380
If DSO is 25 days:
Annual Sales = $4,601,056.3380 - 20% * $4,601,056.3380
Annual Sales = $3,680,845.0704
Days Sales Outstanding = 365 * Accounts Receivable / Annual
Sales
25 = 365 * Accounts Receivable / $3,680,845.0704
Accounts Receivable = $252,112.68
So, accounts receivable will decrease to $252,112.68 if new policy is adopted.
Get Answers For Free
Most questions answered within 1 hours.