Gizmonic Institute Corp. currently has $715,000 in accounts receivable and gener

Question

Gizmonic Institute Corp. currently has $715,000 in accounts receivable and generated $4,350,000 in sales (all on credit) during the year that just ended. The firm's days sales outstanding (DSO) is days? Use 365 days as the length of a year in all calculations. Gizmonic Institute Corp.'s CFO is unhappy with its DSO and wants to improve collections next year. Sales are expected to grow by 13% next year, and the CFO wants to lower the DSO to the industry average of 30 days. How much accounts receivable is the firm expected to carry? $404,014 $424,215 $525,218 $363,613

Explanation / Answer

DSO = [Accounts receivables÷Sales]×365

DSO = [$715,000÷$4,350,000]×365

= 60 days

DSO = [Accounts receivables÷Sales]×365

30 = [Accounts receivables÷($4,350,000×(1+13%))]×365

Accounts receivable = $404,014

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