Route Canal Shipping Company has the following schedule for aging of accounts re

Question

Route Canal Shipping Company has the following schedule for aging of accounts receivable: a. Calculate the percentage of amount due for each month. b. If the firm had $1,716,000 in credit sales over the four-month period, compute the average collection period. Average daily sales should be based on a 120-day period. c. If the firm likes to see its bills collected in 47 days, should it be satisfied with the average collection period? No Yes d. Disregarding your answer to part c and considering the aging schedule for accounts receivable, should the company be satisfied? Yes No

Explanation / Answer

(a)

April=(240240/686400)*100=35%

March=(137280/686400)*100=20%

Feb=(205920/686400)*100=30%

Jan=(102960/686400)*100=15%

(b) Debtor's Turnover=Credit Sales/Debtor=Quaterly Sales*4/Debtor=1716000*4/686400=10

Average Collection Period=360/Debtor's Turnover=360/10=36days

(c) No, 47days is much higher compared to the Average Collection Period of 36days.

(d) No conclusion can be made merely on aging schedule. If the trade practice warrants to have the business in credit and offset the same with higher margin , there is nothing wrong in this aging scheedule.

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