FM27 22 - collected, so none of January's sales remained...

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Mini Case: 27- 22 f. Construct aging schedules for the end of March and the end of June (use the format given below). Do these schedules properly measure customers’ payment patterns? If not, why not? Age of account March June (days) A/R % A/R % 0 – 30 $210 84% 31 – 60 40 16 61 – 90 0 0 $250 100 % Answer: Aging schedule: Age of account March June (days) A/R % A/R % 0 – 30 $210 Mar 84% $ 70 Jun 64% 31 – 60 40 Feb 16 40 May 36 61 – 90 0 Jan 0 Apr 0 $250 100 % $110 100 To see how these aging schedules were constructed, consider first the end-of-March schedule. At that time, 30 percent of March's sales had been collected, so 70 percent remained uncollected: 0.7($300) = $210. February's contribution to receivables is 0.2($200) = $40. Finally, by the end of March, all of January's sales had been
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Unformatted text preview: collected, so none of January's sales remained outstanding. Thus, the receivables account totals $250 at the end of March, which is consistent with the answer to part C. Note that the end-of-June aging schedule suggests that customers are paying more slowly than in the earlier quarter. However, we know that the payment pattern has remained constant, so the firm's customers' payment performance has not changed. Again, a seasonally fluctuating sales level is the cause of the problem: aging schedules give incorrect signals if sales are trending up or down. If sales were a constant $200 in each month, then both aging schedules would indicate that 78 percent of receivables were 0 30 days old and 22 percent were 31 - 60 days old....
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