Incubus, Inc. is considering a change to its current cash-only credit policy. The new terms would...

Question:

Incubus, Inc. is considering a change to its current cash-only credit policy. The new terms would be Net 30 days. The required return is 1.5% per month.

Current Policy

Item Unit Price: $750

Item Unit Cost: $400

Item Unit Volume per Period: 1100

New Policy

Item Unit Price: $750

Item Unit Cost: $400

Item Unit Volume per Period: 1200

What amount would be on the balance sheet for Accounts Receivable if the new policy is adopted?

Accounts Receivable and Credit policy.

Accounts Receivables of a company would be dependent on the credit policy laid down by the company. Payment terms which specifies when the Customers are supposed to pay the Invoices will ultimately determine the Accounts Receivable of the company in a particular period. A credit policy has a direct effect on the volume of investment a company desires to make in receivables.

Answer and Explanation:

The amount that would be on the balance sheet for Accounts Receivable if the new policy is adopted should be = 1200 * $750 = $900,000


Learn more about this topic:

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Credit Policy & Receivables

from Finance 101: Principles of Finance

Chapter 19 / Lesson 1
3.2K

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