A firm has projected next year's sales at $678 million of which 60 percent will be for cash, and 40 percent will be on credit. Forecast the year-end accounts receivable balance if the firm expects an average collection period of 45 days (assume a 360-day year and calculate using year-end balance).

Question

Quizplus · Accepted Answer

The year-end accounts receivable balance can be calculated by first determining the annual credit sales, which are 40% of $678 million, equaling $271.2 million. Then, to find the accounts receivable at year-end, we use the average collection period of 45 days. The formula is (Credit Sales/360) * Average Collection Period = Year-End Accounts Receivable. So, ($271.2 million / 360) * 45 = $33.9 million.

A Firm Has Projected Next Year's Sales at $678 Million