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 five 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 five 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{\$1.00M}{\$7.20M} \times 360 = 50 \text{ days} $. Reducing by 5 days gives 45 days. Next year's sales are \$8.28M, so the planned receivables balance is $ \frac{45}{360} \times \$8.28M = \$1.035M $.

A Firm Is Planning for Next Year and Has Developed