Accounts receivable management An evaluation of the books of Blair Supply, which

ID: 2637647 • Letter: A

Question

follows, gives the end-of-year accounts receivable balance, which is believed to consist

of amounts originating in the months indicated. The company had annual sales

of $2.4 million. The firm extends 30-day credit terms.

Month of origin Accounts receivable

July $ 3,875

August 2,000

September 34,025

October 15,100

November 52,000

December 193,000

Year-end accounts receivable $300,000

a. Use the year-end total to evaluate the firm

Answer:

1. Average Collection period = (Days * Accounts receivable ) / Credit Sales

Here, Days in a year = 360 ( Assumed)

Credit Sales = (Annual Sales * Credit Period )/ Days in a year

Hence Credit Sales = $ 200,000 ( 2.4 million * 30)/ 360

Therefore Average Collection Period = (30* 300,000) / 200,000

Hence Average Collection Period = 45 days

2. Yes it will affcet the validity as every 45 days collection will be made. So that is not possible if 70% sales occur between july and december.

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