Question

Snider Industries sells on terms of 2/10, net 35. Total sales for the year are $1,700,000. Thirty percent of customers pay on the 10th day and take discounts; the other 70% pay, on average, 40 days after their purchases. Assume a 365-day year.

What would happen to average receivables if Snider toughened its collection policy with the result that all non-discount customers paid on the 35th day? Do not round intermediate calculations. Round your answer to the nearest dollar.

Answer 1

Present Days sales outstanding

=10 days x 30% + 40 days x 70%

= 3 +28 = 31 Days

So, Accounts receivable outstanding

= 1,700,000/365 x31

= $144,383.56

if every nondiscount customers pay by 35th Day

Present Days sales outstanding

=10 days x 30% + 35 days x 70%

= 3 +24.5 = 27.5 Days

So, Accounts receivable outstanding

= 1,700,000/365 x27.5

= $128,082.19

Average receivables decreased from 144,383.56 to 128,082.19, if snider toughened its collection policy with the result that all non-discount customers paid on the 35th day.