Question

Your company sells on terms 3/11, net 35. For the year, your company has recorded $2,250,800...

Your company sells on terms 3/11, net 35. For the year, your company has recorded $2,250,800 of sales. 45% of your customers pay on the 11th day and gladly take discounts, while the other 55% pay, on average, 45 days after their purchases. (365 days in a year)

Calculate the average amount of receivables at any given moment. (hint: first calculate the DSO)

Homework Answers

Answer #1

Days sales outstanding (DSO)

Days sales outstanding (DSO) = [Number of days in discount period x percent of the customers pay] + [Non-discount period x percent of the customers pay]

= [11 Days x 45%] + [45 Days x 55%]

= 4.95 Days + $24.75 Days

= 29.70 Days

Average amount of receivables

Sales per day = Total Sales / Number of days in a year

= $2,250,800 / 365 Days

= $6,166.58 per day

Therefore, the Average amount of receivables = Sales per day x Days sales outstanding (DSO)

= $6,166.58 per day x 29.70 Days

= $183,147

“Hence, the average amount of receivables at any given moment will be $183,147”

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