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Net credit position - Accounts receivables accounts payables

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Sampson Orange Juice Company normally takes 20 days to pay for its average daily credit purchases of $6,000. Its average daily sales are $7,000, and it collects accounts in 28 days.

a. What is its net credit position?
b. If the firm extends its average payment period from 20 days to 35 days (and all else remains the same), what is the firm's new net credit position? Has it improved its cash flow?

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Solution Summary

Illustrates how to calculate the net credit position of a firm by calculating the accounts payables and accounts receivables. The problem also shows how the changes in credit period (average collection period) changes the net credit position and its impact on cash flow position.

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a. What is its net credit position? That is, compute its accounts receivable and accounts payable and subtract the latter from the former.
Accounts receivable = Average daily credit sales X Average collection ...

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