- BEC 3 Receivables Management Flashcards | Quizlet - BEC 3 Receivables Management Flashcards | Quizlet

Seasonal dating of accounts receivable. How to calculate average accounts receivable — accountingtools

Calculate the dollar impact on accounts receivable of this proposed change in credit policy. Which of the following statements is most correct?

What is the approximate nominal rate of interest on the Lenders may want to know, so that they can estimate an average possible funding requirement.

What effect would the implementation of this new credit policy have on income before taxes?

Best answer

If you are reporting accounts receivable only on an annual basis, then the only date used will be the year-end figure; since many companies structure their fiscal years to correspond with their lowest business levels, this means that the year-end accounts receivable balance may be well toward the low end of what a company actually experiences over the course of a year.

The problems with using the ending accounts receivable balance include: The last day of the month tends to be the day with the highest accounts receivable balance.

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Please note that this is a trailing 12 months calculation, so you will usually be including the receivable balance from at least a few months in the preceding fiscal year. If credit sales as a percentage of a firm's total sales increases, and the volume of credit sales also increases, then the firm's accounts receivable will Dating coaches boston ma increase.

Which of the following is NOT correct for a firm with seasonal sales and customers who all pay pr There is not an absolute number of accounts receivable days that is considered to represent excellent or poor accounts receivable management, since the figure varies considerably by industry and the underlying payment terms.

Answer b is incorrect because this solution omits the collection of the January 1 sales revenue. The point of the measurement is to determine the effectiveness of a company's credit and collection efforts in allowing credit to reputable customers, as well as its ability to collect cash from them in a timely manner.

The level of accounts receivable will be constant from month to month.

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When measured at the individual customer level, the measurement can indicate when a customer is having cash flow troubles, since it will attempt to stretch out the amount of time before it pays invoices.

It is calculated by dividing the balance of receivables by sales per day. When the credit policy is too tight, a company is potentially turning away sales and profits by denying credit to customers who are more likely than not to be able to pay the company.

The quarterly uncollected balances schedule will be the same in each quarter.

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When you calculate an average accounts receivable balance, it is easiest to use the month-end balance for each month measured, simply because this information is always recorded in the balance sheetand so is always available in the accounting records.

Assume a day year. An effective way to use the accounts receivable days measurement is to track it on a trend line, month by month. Items 51 and 52 are based on the following information: However, you should not use it when conducting cash flow planning, since day-to-day variations in the actual receivable level may be very different from the long-term average.

In these cases, it would be more accurate to average the accounts receivable over just three months. Firms use seasonal dating primarily to decrease their DSO.

How to Calculate Accounts Receivable Collection Period: 12 Steps

The measurement is usually applied to the entire set of invoices that a company has outstanding at any point in time, rather than to a single invoice. It may also be useful for the general estimation of budgeted working capital levels.

If you have a rapidly growing business, then using the average receivable balance for the last 12 months will understate the amount of receivables to be expected on a go-forward basis. Which of the following describes the appropriate formula for days' sales outstanding? The accounts receivable balance may vary massively by month, since sales may be seasonal.

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The bank offers the choice of a 12 percent discount interest loan or a The required financial strength of acceptable customers. Which of the following is NOT correct for a firm with seasonal sales and customers who all pay promptly at the end of 30 days?

Given these issues, it makes sense to instead calculate an average accounts receivable balance.