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Net credit position

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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 the 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 period receivable

Accounts payable = average daily credit purchases X average payment period payable

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

The solution shows all the steps for calculating the net credit position for a given company under two different circumstances.

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1. Accounts receivable = average daily credit sales X Average collection period receivable
Average daily sales = 7,000
Average collection period = 28 ...

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