Suppose that a clinic has third-party payer revenues of $10,000 a day. On average, it takes the clinic 50 days to collect from its payers. What will be the steady state receivables balance?
The accounts receivable represent the amount that a company has to receive from its customers for making them sales on account. They represent the cash to be received and hence are classified as the current asset in the balance sheet. The number of takes it takes for the company to convert receivables into cash is referred to as days' sales in receivables.
Answer and Explanation:
The receivables balance will be $500,000.
As per the information provided in the question:
- Daily sales = $10,000
- Annual sales = $3,650,000 ($10,000 * 365 days)
- Days' sales in receivable = 50 days
- Days' sales in receivables = (365 days * Accounts receivable) / Annual sales
- Accounts receivable = ($3,650,000 * 50 days) / 365 days
- Accounts receivable = $500,000
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from Accounting 101: Financial AccountingChapter 7 / Lesson 1