The treasurer of Gould's Stores, Inc., was interested in what effect, if any, new credit terms have had on collections of customer accounts. The usual 30-day payment period was shortened to 20 days in an attempt to reduce the investment in accounts receivable. The following information for the current year and the preceding year (prior to the payment period change) is available. (see attached)
Current Year Preceding Year
Accounts Receivable (Net of Bad Debt Allowance) $1,392,790 $1,207,393
Credit Sales 13,035,085 11,597,327
We need to calculate the average collection period so see if there has been any effect.
Average collection period (ACP) = Accounts Receivable/Per Day sales
For preceding ...
The solution explains how to determine the effect on collection of customer accounts of a new credit policy