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The Arizona Bay Corporation sells on credit terms of net 30. Its accounts are, on average, four...

Question:

The Arizona Bay Corporation sells on credit terms of net 30. Its accounts are, on average, four days past due.

If annual credit sales are $9.75 million, what is the company's balance sheet amount in accounts receivable?

Accounts Receivable:

Accounts receivable is the second-most liquid asset, after cash. It arises from the normal course of business when the customers pay after a specified period of time. Accounts receivable can also be subjected to impairment if there are bad debts from non-collection of the receivables.

Answer and Explanation:

The accounts receivable amount that should appear in the balance sheet is $920,680

Explanation:

We will compute for the accounts receivable turnover using the below-given formula, assuming we have 360 days:

Note: This is an alternate formula of the turnover, in case the accounts receivable amount is not given.

{eq}Accounts~Receivable~Turnover~=\displaystyle \frac{360~days}{Collection~Period} {/eq}

{eq}Accounts~Receivable~Turnover~=\displaystyle\frac{360~days}{34~days} {/eq}

Accounts receivable is currently at 10.59x.

To compute for the accounts receivable balance, the formula is derived from the original accounts receivable turnover formula.

{eq}Accounts~Receivable~=\displaystyle \frac{Credit~Sales}{Accounts~Receivable~Turnover} {/eq}

{eq}Accounts~Receivable~=\displaystyle \frac{\$9,750,000}{10.59} {/eq}

The accounts receivable amount is at $920,680.


Learn more about this topic:

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Accounts Receivable: Definition, Process & Examples

from Accounting 101: Financial Accounting

Chapter 7 / Lesson 1
70K

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