FM27 23 - remained outstanding. Similarly, 70 percent of...

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Mini Case: 27 - 23 g. Construct the uncollected balances schedules for the end of March and the end of June. Use the format given below. Do these schedules properly measure customers' payment patterns? March June contribution A/R-to- contribution A/R-to- Month Sales to A/R sales ratio month sales to A/R sales ratio Jan $100 $ 0 0% Apr Feb 200 40 20 May Mar 300 210 70 Jun Answer: Uncollected balances schedules: Contribution to Ratio of month's Month Sales end-of-period A/R A/R to month’s sales (1) (2) (3) (4) Jan $100 $ 0 0% Feb 200 40 20 Mar 300 210 70 End of quarter A/R $250 90 % Apr $300 $ 0 0% May 200 40 20 Jun 100 70 70 end of quarter A/R $110 90 % In column 3 above, the contribution of each month's sales to the firm's receivables balance is identified. To illustrate, at the end of March, all of January's sales had been collected, but only 80 percent of February's sales had been collected, so $40
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Unformatted text preview: remained outstanding. Similarly, 70 percent of March's sales were still outstanding, so March's contribution to receivables was 0.7($300) = $210. The focal point of the uncollected balances schedule is column 4, the receivables-to-sales ratio. When we compare March and June, we see no difference, which is what we should see, given that there has been no change in the payment pattern. Thus, the uncollected balances schedule gives a true picture of customers' payment patterns, even when sales fluctuate. Note also (1) that any increase in column 4 from a month in one quarter to the corresponding month in the next quarter is "bad" in the sense that it indicates a slowdown in payments, and (2) that the bottom line gives a summary of the changes in payment patterns....
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This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.

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