any help? thank you
Diazstar corporation sells on terms of 2/10, n/30. 70% of costumers normally avail of the discounts. annual sales are $900,000. 80% of which is made on credit. Cost is approximately 75% of sales.
required:
1. average balance in accounts receivable.
2. average investment in accounts receivable.
Do you know what 2/10 n/30 means?
It means if you pay before 10days, you get 2% off, but you must pay all before 30days.
@anonymous: yey now, i know what it means!thanks.. so..how to compute for average balance in accounts receivable and
average investment in accounts receivable?
you know..i really need those... coz my exam is tomorow and my teacher doesnt teach!sigh~...
To calculate the average balance in accounts receivable, you need to determine the average amount of money that is owed to the company by its customers. This can be found using the following formula:
Average Balance in Accounts Receivable = (Total Credit Sales * Percentage of Sales Made on Credit) * (1 - Percentage of Customers Availing Discounts)
Let's calculate step by step:
1. Total Credit Sales = $900,000 * 80% = $720,000
2. Percentage of Sales Made on Credit = 80%
3. Percentage of Customers Availing Discounts = 70%
Average Balance in Accounts Receivable = ($720,000) * (1 - 0.70) = $216,000
Therefore, the average balance in accounts receivable is $216,000.
Now, let's move on to calculating the average investment in accounts receivable. This represents the amount of money that the company has invested in accounts receivable and is waiting to be collected.
Average Investment in Accounts Receivable = Average Balance in Accounts Receivable * (1 - Percentage of Discount) * (1 + Discount Percentage)
To calculate this, we need to know the terms of the discounts offered by the company:
1. Discount Percentage = 2%
2. Discount Period = 10 days
3. Net Period = 30 days
Average Investment in Accounts Receivable = $216,000 * (1 - 0.02) * (1 + (10 / 30)) = $216,000 * 0.98 * 1.33 = $287,616
Therefore, the average investment in accounts receivable is approximately $287,616.