1. How do we calculate Days Receivables?

2. What is Cash Conversion Efficiency?

3. What are the three situations in which it makes economic sense to forgo taking a cash discount?

4. Why is it important to monitor Accounts Receivable?

5. What are the weaknesses associated with the Days Sales Outstanding Approach?

PROBLEMS:

1. A COMPANY HAD SALES OF $450,000 OVER THE LAST QUARTER (90 DAYS) AND ENDING A/R OF $275,000. IF THE COMPANYS TERMS ARE NET 45, WHAT IS THE NUMBER OF DAYS PAST DUE FOR THE LAST QUARTER?

2. A COMPANY IS CURRENTLY RUNNING A DSO OF 45 DAYS ON ANNUAL SALES OF $1.25 M. IF THE COMPANY IS PROJECTING THAT NEXT YEARS SALES WILL BE $1.6 M, HOW MUCH WILL THE LEVEL OF A/R INCREASE (ASSUMING DSO REMAINS AT 45 DAYS)?

3. A COMPANY HAD THE FOLLOWING SALES OVER THE LAST QUARTER: JAN= $150,000, FEB = $300,000 AND MARCH = $450,000. THE COMPANY TYPICALLY COLLECTS 10% OF SALES IN THE MONTH OF SALE, 60% ONE MONTH AFTER SALE AND THE REMAINING 30% TWO MONTHS AFTER SALE. IF THE COMPANY IS PROJECTING SALES OF $550,000 IN APRIL, WHAT IS THE AMOUNT OF EXPECTED CASH INFLOWS FROM SALES IN THE MONTH OF APRIL?

4. A COMPANY OFFERS CREDIT TERMS OF 2/10 NET 30. HISTORICALLY, 30% OF THE CUSTOMERS TAKE THE DISCOUNT. USING THE AGING SCHEDULE BELOW, BY HOW MUCH DOES THIS DISCOUNT REDUCE COMPANY SALES REVENUES? USE THE AGING SCHEDULE BELOW DETAILING DATA ON THE COMPANY'S ACCOUNTS RECEIVABLE (A/R) TO FIND THE ANSWER. Age of A/R Amount of A/R % of Total A/R 0-30 days $390,000 65% 31-60 days $120,000 20% 61-90 days $60,000 10% 91+ days $30,000 5% Total $600,000 100%