Route Canal Shipping Company has the following schedule for aging of accounts re
ID: 2686251 • Letter: R
Question
Route Canal Shipping Company has the following schedule for aging of accounts receivable:
Age of Receivable
( 1) ( 2 ) ( 3 ) ( 4 )
Month of Sales Age of Account Amounts % of amount due
April 0-30 $105,000
March 31-6060,000
February 61-90 90,000
January 91-120 45,000
Total receivables $300,000 100%
a. fill in the column (4) for each month
b. If the firm had $1,440,000 in credit sales over th four-month period, compute the average collection period. Avg. daily sales should be based on a 120-day period.
c. If the firm likes to see its bills collected in 30 days, should it be satisfied with the average collection period?
d. Disregarding your answer to part c and considering the aging schedule for accounts receivable, should the company be satisfied?
e. what additional information does the aging schedule bring to the company that the average collection period may not show?
Explanation / Answer
A. Fill in column 4 for each month. April 0-30 105,000=========== 35% March 31-60 60,000========== 20% February 61-90 90,000======== 30% Janurary 91-120 45,000======= 15% Total receivables 300,000===== 100% B. if the firm had 1,440,000 in credit sales over the four month period, compute the average collection period. Average daily sales should be based on a 120 day period. average collection period = Number of days / credit sales / receivables = 120 / 1,440,000 / 300,000 = 25 days C. If the fir likes to see its bills collected in 30 days should it be satisfied with an average collection period? Considering that seller likes to see its bill collected before 30 days, the seller would be more than satisfied because the average collection days are 25 days which is well within its threshold. D. Disregarding your answer to part c and considering the aging schedule for accounts receivable, should the company be satisfied? while analyzing the aging schedule, it may be noted that 65% of the receivable pertains to more than 30 days old, which is alarming in the context that average collection day is 25 days and sellers threshold is 30 days. keeping in view the above fact the company may not be satisfied and needs to undertake regressive follow up for collection. E. what additional information does the aging schedule bring to the company that the average collection period may not show? Computation of average collection period fail to identify the receivables which require attention due to its recoverability. Although as a whole the collection period may be satisfactory but there may be items which are overdue. Hence, aging schedule provides additional information regarding the account balances which are overdue.
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