Question

Elsee, Inc., has net sales of $16 million, and 75 percent of these are credit sales. Its cost of goods sold is 65 percent of annual net sales. The firm’s cash conversion cycle is 58.0 days. The inventory balance at the firm is $1,842,000, while its accounts payable balance is $2,387,000. What is the firm’s accounts receivable balance? (Round intermediate calculations to 1 decimal places, e.g. 15.1. and final answer to nearest whole dollar, e.g. 5,275.)

The firm’s accounts receivables are $ .

Answer 1

CCC = DIO + DSO - DPO

Cash Conversion Cycle = 58 days

DIO = Days Inventory Outstanding = (Inventory /Cost of goods sold) x Number of days in the period

                                                        = $ 1,842,000/ ($ 16,000,000 x 0.65) x 365

                                                        = ($ 1,842,000/ $10,400,000) x 365

                                                        = 0.177115384615385 x 365

  = 64.6471153846154 or 64.6 days

DSO = Days Sales Outstanding = (Account Receivable /Total Credit Sales) x Number of days in the period

= Account Receivable / ($ 16,000,000 x 0.75) x 365

= (Account Receivable / $ 12,000,000) x 365

DPO = Days Payable Outstanding = (Accounts Payable /Cost of goods sold) x Number of days in the period

= ($ 2,387,000/$10,400,000) x 365

    = 0.229519230769231 x 365

                                                      = 83.7745192307692 or 83.8 days

DSO = 58 - 64.6 + 83.8

        = 77.2 days

77.2 = (Account Receivable /$ 12,000,000) x 365

Account Receivable /$ 12,000,000 = 77.2/365

                                                        = 0.211287671232877

Account Receivable = 0.211506849315068 x $ 12,000,000

                                 = $ 2,538,082.19178082 or $ 2,538,082

The firm's account receivables are $ 2,538,082