Sell on term 1/10, net 30. Gross sales last year $4,821,500 and accounts receiva

Question

Sell on term 1/10, net 30. Gross sales last year $4,821,500 and accounts receivable averaged $434,500. Customers paid on tenth day and took discount. What are the nominal and effective cost of trade credit to non discount customers( hint: calculate sales /day based on a 365-day year: then get average receivables of discount customers: then find the DSO for the non discount customers) nominal and effective cost? Sell on term 1/10, net 30. Gross sales last year $4,821,500 and accounts receivable averaged $434,500. Customers paid on tenth day and took discount. What are the nominal and effective cost of trade credit to non discount customers( hint: calculate sales /day based on a 365-day year: then get average receivables of discount customers: then find the DSO for the non discount customers) nominal and effective cost?

Explanation / Answer

Average Account Receivable=$434500

Sales=$4821500

Discount=$4821500*.01=$48215

Net Receipt=$4773285

Average Receivable of Discount Customer= $132096

Effective cost of Credit=$48215/$4773285=(1.01%*365/20)=18.43% P.A.

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