Sales (on credit terms) A/R Balance Current 31-60 61-90 90+ Jan 3390 6,200 3,345 1795 1000...

	Sales (on credit terms)	A/R Balance	Current	31-60	61-90	90+
Jan	3390	6,200	3,345	1795	1000	60
Feb	3,610	6,000	3,560	1,550	825	65
Mar	3890	6,340	3,590	1800	900	50
Total	10,890

using the sample ATB above, compute the collection effectiveness index of the company (10Items must show solutions). Then provide analysis of the effect of the result when it will decrease and when it will increase?

Solutions

Expert Solution


Collection Effectiveness Index:(CEI)
(Beginning Receivable+Credit Sales-Ending TOTAL Receivable)/(Beginning Receivable+Credit Sales-Ending CURRENT Receivable)
Beginning Receivable (Jan AR Balance)	$6,200
Credit Sales	$10,890
Ending TOTAL Receivable	$6,340
Ending CURRENT Receivable	$3,590
(Beginning Receivable+Credit Sales-Ending TOTAL Receivable)	$10,750	(6200+10890-6340)
(Beginning Receivable+Credit Sales-Ending CURRENT Receivable)	$13,500	(6200+10890-3590)

Collection Effectiveness Index:	0.7963	(10750/13500
Collection Effectiveness Index:	79.63%

If CEI increases, collection is better
Best CEI (ideal) is 100%
This means Ending Total and Current Receivables are equal
If CEI decreases,the reasons need to be investigated

jeff jeffy answered 1 year ago

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