An evaluation of the books of Blair Supply, shich follows, gives the end of year

Question

An evaluation of the books of Blair Supply, shich follows, gives the end of year accounts recievable balance, which is believed to consist of amounts origiating in the months indicated. The company had annual sales of $2.4 million. The firm extends 30-day credit terms.

$3875

Use the year end total to evaluate the firms collection system

if 70% of the firms salls occur between July and December would this information affect the validity of your conclusion in part A? Explain.

Month of orgin Accounts Receivable July

$3875

August 2000 September 34025 October 15100 November 52000 December 193000 Year end accounts receivable 300000

Explanation / Answer

Solution-a

Anuual Sales = $2,400,000

Accounts receivable = $300,000

Accounts receivable turnover ratio = Anuual Sales / Accounts receivable

Accounts receivable turnover ratio = $2,400,000 / $300,000

Accounts receivable turnover ratio = 8 times

Average Collection Period = 365 / 8

Average Collection Period = 46 Days

Solution-b

The average collection period is 46 days, whereas the firm extends 30 days credit limit.

Hence the Average collection period is more than the credit allowed.

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