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This question is most easily solved by setting up a calculation of the receivable balance under both the existing policy and the proposed policy. This is done below: Existing Proposed Policy Policy Total Sales $50,000,000 $47,500,000 Credit Sales $35,000,000 $28,500,000 Credit Sales Per Day (Credit Sales ÷ 360) $97,222 $79,167 No. of Days A/R Outstanding 75 50 Average A/R Outstanding (Credit Sales Per day × # Days A/R Outst) $7,291,650 $3,958,350 The difference between these two amounts is the amount by which accounts receivable will change. The difference is $3,333,300.
This answer uses total sales to calculate the ending balance of receivables. Credit sales should be used instead. See the correct answer for a complete explanation.
This is the decrease in credit sales that will result from this change in policy. See the correct answer for a complete explanation.
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