Given Data:
Total Sales: $912,500
% of customers that take discounts: 40%
% of customers that do not take discounts: 60%
# of days that cusomers who take discounts pay by: 10 Days
# of days that customers who do not take discounts pay by: 40 Days
# of days that customers who do not take discounts pay by after toughening creidt policy: 30 Days
Days in a Year 365 Days
First recalculate the Days Sales Outstanding
Days Sales Outstanding = 30 Days
Average Amount of Receivables =
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Total Sales: $912,500
Percent of customers that take discounts: 40%
Percent of customers that do not take discounts: 60%
Number of days that cusomers who take discounts pay by: 10 Days
Number of days that customers who do not take discounts pay by: 40 Days
Number of days that customers who do not take discounts pay by after toughening creidt policy: 30 Days
Days in a Year 365 Days
First recalculate the Days Sales Outstanding:
Days Sales Outstanding = ?
Average Amount of Receivables = ?
To calculate the Average Amount of Receivables, we need to first calculate the accounts receivable turnover.
The accounts receivable turnover is calculated by taking the total sales and dividing it by the average accounts receivable.
Accounts Receivable Turnover = Total Sales / Average Accounts Receivable
Next, we can calculate the Average Collection Period, which is the number of days it takes to collect accounts receivable.
Average Collection Period = 365 Days / Accounts Receivable Turnover
Finally, we can calculate the Days Sales Outstanding (DSO), which represents the average number of days it takes to collect on sales.
Days Sales Outstanding = Average Collection Period - Number of Days Customers Who Do Not Take Discounts Pay By
In this case, the Days Sales Outstanding is given as 30 days.
Now we can rearrange the equation to solve for the Average Amount of Receivables.
Average Collection Period = Days Sales Outstanding + Number of Days Customers Who Do Not Take Discounts Pay By
Substituting the values given:
30 Days = Average Collection Period + 30 Days
To solve for the Average Collection Period:
Average Collection Period = 30 Days - 30 Days = 0 Days
Since the average collection period is 0 days, it means that customers who do not take discounts pay immediately. Therefore, the Average Amount of Receivables for customers who do not take discounts is $0.