Receivables Investment
Snider Industries sells on terms of 2/10, net 25. Total sales for the year are $850,000. Thirty percent of customers pay on the 10th day and take discounts; the other 70% pay, on average, 30 days after their purchases. Assume a 365-day year.
What is the days sales outstanding? Do not round intermediate calculations. Round your answer to the nearest whole number.
days
What is the average amount of receivables? Do not round intermediate calculations. Round your answer to the nearest dollar.
$
What would happen to average receivables if Snider toughened its collection policy with the result that all nondiscount customers paid on the 25th day? Do not round intermediate calculations. Round your answer to the nearest dollar.
$
a. Computation of Days Sales Outstanding
Days Sales Outstanding = Percent pay in 10 days * 10 days + Percent pay in 30 days * 30 days
Days Sales Outstanding = 30% * 10 + 70% * 30
Days Sales Outstanding = 24 days
b. Computation of Average Accounts Receivable
Accounts Receviable = DSO * Sales / 365
Accounts Receviable = 24 * 850000 / 365
Accounts Receviable = $55890.41
c. New DSO
Days Sales Outstanding = Percent pay in 10 days * 10 days + Percent pay in 25 days * 25 days
Days Sales Outstanding = 30% * 10 + 70% * 25
Days Sales Outstanding = 20.50 days
New Accounts Receivable = DSO * Sales / 365
New Accounts Receivable = 20.50 * 850000 / 365
New Accounts Receivable = 47739.73
Becausee of tough collection policy Accounts receivable will decrease by $8150.68 (55890.41 - $47739.73)
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