This is 21 days worth of sales. However, the correct way to solve this is to calculate how many days worth of sales that are outstanding in accounts receivable at any given time will be 45 days old. That number of days multiplied by the average daily sales amount will be the projected amount of overdue receivables. See correct answer for an explanation of how to do this.
This is 15 days worth of sales, which is the difference between the 45 days taken by 20% of the customers and the 30 days allowed. However, the correct way to solve this is to calculate how many days worth of sales that are outstanding in accounts receivable at any given time will be 45 days old. That number of days multiplied by the average daily sales amount will be the projected amount of overdue receivables. See correct answer for an explanation of how to do this.
This is 20% of the total projected annual sales. However, not all of the annual sales will be outstanding as receivables at any one time. The question is asking how much of the amount of receivables outstanding at any one time will be past due.
(1) The company projects gross sales to be $2,000,000 for the year. Based on a 360-day year, that is $5,555.55 in sales per day ($2,000,000 ÷ 360). (2) 20% of the sales will be paid on the 45th day, which is past the due date of 30 days, so those receivables will be overdue. .20 × 45 = 9 days, so there will be 9 days worth of receivables in the total accounts receivable balance at any given time that will be past due. (3) That can be converted to the A/R balance outstanding that is projected to be overdue by multiplying 9 days by $5,555.55 sales per day, which equals $50,000. If step (2) does not seem to make sense, here is the reason we do that: If we needed to, we could calculate the total number of days of sales in accounts receivable by using a weighted average, which is the sum of each number of days to pay given in the problem, multiplied by each percentage of the total, as follows: .40 × 15 days sales are outstanding = 6 days .40 × 30 days sales are outstanding = 12 days .20 × 45 days sales are outstanding = 9 days Total number of days sales outstanding in accounts receivable 27 days The total number of days outstanding in accounts receivable will be 27 days. From that, we can calculate the total outstanding balance of all the accounts by multiplying 27 days by the daily average sales amount of $5,555.55. The result is $150,000, and that will be the projected total accounts receivable on any given date and also the projected average balance of accounts receivable. It is not necessary to calculate the total number of days outstanding in accounts receivable or the total average balance in accounts receivable to answer this question, but it does help to see why we do step (2) above. Of the $150,000 average balance in accounts receivable, which is 27 days worth of sales, 9 days worth of sales, or 9 × $5,555.55, which is $50,000, will be paid on the 45th day and thus will be past due at any given time.
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