Receivables Calculations
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Company A sells on terms of 3/10, net 30. Total sales for the year are 912,500; 40 percent of the customers pay on the 10th day and take discounts, while the other 60 percent pay, on average, 40 days after their purchases.
1) what is the days' outstanding sales?
2) What is the average amount of receivables?
3) What is the percentage cost of trade credit to customers who take the discount and to those who do not take it?
4) what would happen to its accounts receivable if Company A toughened up on its collection policy with the result that all nondiscount customers paid on the 30th day?
Please show calculations.
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Solution Summary
The solution explains various calculations relating to accounts receivables
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1) what is the days' outstanding sales?
The days sales outstanding (DSO) would be a weighted average. 40% pay on Day 10 and 60% pay on Day 40
DSO = 0.4X10 + 0.6X40 = 28 days
2) What is the average amount of receivables?
DSO = Average Receivables/(Sales/365)
Average amount of ...
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