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    Accounts Receivable

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    Ruth Company currently has $1,000,000 in accounts receivable. Its days sales outstanding (DSO) is 50 days (based on a 365-day year). Assume a 365-day year. The company wants to reduce its DSO to the industry average of 32 days by pressuring more of its customers to pay their bills on time. The company's CFO estimates that if this policy is adopted the company's average sales will fall by 10 percent. Assuming that the company adopts this change and succeeds in reducing its DSO to 32 days and does lose 10 percent of its sales, what will be the level of accounts receivable following the change?

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    Solution Preview

    DSO = Accounts Receivable/(Sales/365)
    First solve for current annual sales using the DSO equation as follows: ...

    Solution Summary

    The solution explains the change in the receivables balance following a reduction in the DSO.