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    Accounting Effects of New Credit Policies

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    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

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    Solution Preview

    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 ...

    Solution Summary

    The solution explains how to determine the effect on collection of customer accounts of a new credit policy