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    Average accounts receivable balance

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    Darla's Cosmetics has annual credit sales of $1,440,000 and an average collection period of 45 days in 2008. Assume a 360 day year.

    What is the company's average accounts receivable balance? Accounts receivable are equal to the average daily credit sales times the average collection period.

    If accounts receivalbe change to $200,000 in the year 2009, while credit sales are $1,800,000, should I assume the firm committed to a more lenient credit policy?

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    Solution Preview

    Accounts receivable =average daily credit sales X the average collection period.
    Average daily credit sales = 1,440,000/360 = 4,000
    Average collection period = 45 days
    Average ...

    Solution Summary

    The solution explains how to calculate the average accounts receivable balance and the type of credit policy followed by the firm.