Principles of Accounting
12th Edition
ISBN: 9781133626985
Author: Belverd E. Needles, Marian Powers, Susan V. Crosson
Publisher: Cengage Learning
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Chapter 9, Problem 5DQ
To determine
Indicate the effect of the change in policy on the receivables turnover and the days’ sales collected.
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To increase its sales, a company decides to increase its credit terms from 15 to 30 days. What effect will this change in policy have on receivables turnover and days' sales uncollected?
What is a possible reason for accounts receivable turnover to increase from one year to the next year?
Granting credit to customers with lower credit quality.
Decreased credit sales during a recession.
Improved collection process.
Write-off uncollectible receivables.
d. What is the percentage cost of trade credit to customers who do not take the discountand pay in 70 days?e. What would happen to McEwan’s accounts receivable if it toughened up on its collectionpolicy with the result that all nondiscount customers paid on the 30th day?
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- 6. Your firm decides to tighten its credit policy so that customers pay in 30 days rather than 45 days. Assuming no other changes, this action will decrease the firm's: A Trade payables period. B Inventory holding period. C Trade receivables collection period. D None of above.arrow_forward1-what is the percentage cost of trade credit to customers who do not take the discount and pay in 40 days? 2-what would happen to McDowell s accounts receivable if it toughened up on its collection policy with the result that all nondiscount customers paid on the 30th day?arrow_forwarda) Calculate Kopitiam Sdn Bud’s accounts receivable turnover ratio for Year 2 and Year 3. b) Calculate the number of days the average balance of receivables is outstanding before being converted into cash (turnover in days) for Year 2 and Year 3 c) What problem do you see with the company’s credit policy if the terms are net 30 days? Explain your answer.arrow_forward
- Which of the following would best explain an increase in receivables turnover? The company adopted new credit policies last year and began offering credit to customers with weak credit histories. Due to problems with an error in its old credit scoring system, the company had accumulated a substantial amount of uncollectible accounts and wrote off a large amount of its receivables. To match the terms offered by its closest competitor, the company adopted new payment terms now requiring net payment within 30 days rather than 15 days, which had been its previous requirement.arrow_forwardNed Sdn Bhd's trade receivable days have been getting shorter in recent years. Which of the following actions is likely to result in trade receivables days getting longer? A Negotiating longer credit terms with the company's main customer. B Decreasing inventory levels. C Sending reminder letters as soon as the debt is due. D Offering a discount for prompt payment.arrow_forwardThe days' sales uncollected ratio is used to: Measure how many days of sales remain until the end of the year. Determine the number of days that have passed without collecting on accounts receivable. Identify the likelihood of collecting sales on account. D. Estimate how much time is likely to pass before the amount of accounts receivable is collected.arrow_forward
- Route Canal Shipping Company has the following schedule for aging of accounts receivable: Age of Receivables April 30, 20X1 (3) (2) Age of Account 0-30 31-60 61-90 91-120 (1) Month of Sales April March February January Total receivables Month of Sales April March a. Calculate the percentage of amount due for each month. February January Amounts $120,540 86,100 103,320 34,440 $344,400 Total receivables Percent of Amount Due % % % do (4) Percent of Amount Due % 100 % 100%arrow_forwardOriginal Media Sign Incorporated sells on account. Recently, Original reported the following figures Net Credit Sales Net Receivables at end of year Read the requirements. $ 2024 2024 545,100 $ 38,900 2023 Y 602,500 40,100 Requirement 1. Compute Original's days' sales in receivables for 2024. (Round to the nearest day.) First calculate the accounts receivable turnover. (Abbreviations used: AR turn = accounts receivable turnover ratio, Cash Cash including cash equivalents; ST invest = short-term investments. Round the accounts receivable turnover ratios to two decimals, X.XX.) G = AR turnarrow_forwardDays' sales in receivables a.measures the number of times the receivables turn over each year b.is an estimate of the length of time the receivables have been outstanding c.is credit sales divided by average receivables d.is not meaningful and therefore is not usedarrow_forward
- trout lumber Yard has a current accounts receivable balance of $442016. Credit sales for the year just ended were $9358610 a. What is the receivables turnover? b. What is the day's receivables? c. How long did it take on average for credit customers to pay off their accounts during the past year? a. Receivables turnover _____ times b. Days sales in receivables ____ days c. Average collection period_____ daysarrow_forwardWhite Inc. wishes to speed up collection of its receivables. White currently offers credit terms of 1/20, net 40. It is considering changing to terms of 2/15 net 30. The collection period is expected to be reduced from 40 to 20 days. The percentage of customers paying within the discount period is expected to increase from 50 percent to 75 percent. Bad debt losses average 6 percent of sales and are not expected to change under the proposed policy. The inventory level is expected to increase by $2,000,000. Annual sales are $30 million. The variable cost ratio is 70 percent. The pretax return on funds made available by this change in policy is 10 percent. Assuming the change in terms is made; determine the net effect on White’s pretax profits.arrow_forward4.-Which of the following changes in credit standards and terms would cause a decrease in profit? A) Decrease in customers taking advantage of the discount. B) Increase in average collection period days. C) Increase in units sold. D) Decrease in the % of uncollectible accounts.arrow_forward
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