Question

ABC Company's Days Sales Outstanding (DSO) is expected to change next year from 40.3 days to...

ABC Company's Days Sales Outstanding (DSO) is expected to change next year from 40.3 days to 44.9 days, although annual sales are expected to stay constant at $15,000,000 per year. Given this change in the DSO, by how much will Accounts Receivable change next year? Show your answer to the nearest dollar, and if it is negative, show a negative sign (e.g., 123456 or -123456).

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Answer #1

Assumptions

1. 100% of sales are credit sales.

2. No. of days in a year is 365

3. Sales is constant for both years.

For 1st Year

Sales - $15000000

DSO - 40.3

40.3 * 15000000 = Account receivables *365

604500000 = 365 Account receivables

Account Receivales = 604500000/365

Account Receivables (1st Year ) = 1656164 $

For 2nd Year

Sales - $15000000

DSO - 44.9

44.9 * 15000000 = Account receivables * 365

673500000 = 365 Account Receivables

Account Receivables = 673500000/365

Account Receivables ( 2nd Year ) = 1845205 $

Change in Account Receivables = Account Receivables(2nd year) - Account Receivables(1st year)

= 1845205 - 1656164

Change in Account Receivables? = $189041

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