A firm is planning for next year and has developed the following information $\begin{array}{lr}
\text {This year's sales }&\$ 7.20 \mathrm{M}\
\text {Next year's sales }&\$ 8.28 \mathrm{M}\
\text { This year's Accounts receivable}&\$ 1.00 \mathrm{M}\
\end{array}$
What receivables balance should the firm plan for next year if management intends to reduce the ACP by ten days? (Calculate using ending balances and a 360-day year):

Question

A firm is planning for next year and has developed the following information $\begin{array}{lr}
\text {This year's sales }&\$ 7.20 \mathrm{M}\
\text {Next year's sales }&\$ 8.28 \mathrm{M}\
\text { This year's Accounts receivable}&\$ 1.00 \mathrm{M}\
\end{array}$
 What receivables balance should the firm plan for next year if management intends to reduce the ACP by ten days? (Calculate using ending balances and a 360-day year):

Quizplus · Accepted Answer

To find the planned receivables balance, first calculate the current ACP: $ \text{ACP} = \frac{\text{Accounts Receivable}}{\text{Sales per day}} = \frac{1.00M}{7.20M/360} = 50 \text{ days} $. Reducing ACP by 10 days gives 40 days. Next year's sales per day is $ \frac{8.28M}{360} $. The planned receivables balance is $ 40 \times \frac{8.28M}{360} = 0.92M $.

A Firm Is Planning for Next Year and Has Developed