In: Finance
Route Canal Shipping Company has the following schedule for
aging of accounts receivable:
Age of Receivables |
|||||
(1) | (2) | (3) | (4) | ||
Month of Sales |
Age of Account |
Amounts | Percent of Amount Due |
||
April | 0–30 | $ | 156,240 | _______ | |
March | 31–60 | 78,120 | _______ | ||
February | 61–90 | 117,180 | _______ | ||
January | 91–120 | 39,060 | _______ | ||
Total receivables | $ | 390,600 | 100% | ||
a. Calculate the percentage of amount due for each
month.
b. If the firm had $1,512,000 in credit sales over
the four-month period, compute the average collection period.
Average daily credit sales should be based on a 120-day
period.
c. If the firm likes to see its bills collected in
36 days, should it be satisfied with the average collection
period?
Yes
No
d. Disregarding your answer to part c and
considering the aging schedule for accounts receivable, should the
company be satisfied?
Yes
No
This is the answer to part a
where the percentage is calculated for different month of sales.
Formula used to calculate is also given alongside
The average collection period is 7.75 days which is much less than the period in which the company is expecting to receive its payments.
The above picture contains answers to part c,d explaining the stance of the company in both the situations. For part c company should be satisfied because its average collection period is very less however if we ignore the average collection period then the company needs to think its collection schedule as major chunk(60%) of it balances are received after 30 days.