Accounts receivable management An evaluation of the books of Blair Supply, which
ID: 2637647 • Letter: A
Question
Accounts receivable management An evaluation of the books of Blair Supply, which
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
Explanation / Answer
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.