Question

Route Canal Shipping Company has the following schedule for aging of accounts receivable:

Age of Receivables April 30, 20X1
(1)	(2)	(3)		(4)
Month of Sales	Age of Account	Amounts		Percent of Amount Due
April	0–30	$	227,010	_______
March	31–60		129,720	_______
February	61–90		194,580	_______
January	91–120		97,290	_______
Total receivables		$	648,600	100%

a. Calculate the percentage of amount due for each month.

b. If the firm had $1,692,000 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 45 days, should it be satisfied with the average collection period?

​yes or no

d. Disregarding your answer to part c and considering the aging schedule for accounts receivable, should the company be satisfied?
yes or no

Answer 1

Answer:

a.

Month of Sales	Age of Accounts	Amounts ($)	Formula	Percent of Amount Due (%)
April	0 -30	227,010	(227,010 / 648,600)* 100	35
March	31 - 60	129,720	(129,720 / 648,600)* 100	20
February	61 - 90	194,580	(194,580 / 648,600)* 100	30
January	91 - 120	97,290	(97,290 / 648,600)* 100	15
Total Receivables		648,600		100

b.

Average Credit Sales = $ 1,692,000 / 120 = $ 14,100

Average Collection Period = $ 648,600 / $ 14,100 = 46 days

c.

No, the average collection period of 46 days is more than 45 days.

d.

Yes,the aging schedule allows the firm to stay on top of accounts receivable by limiting doubtfil accounts and provides aaditional insight that 60 % of the accounts receiables are over 45 days old.