11. The monitoring of a firm's receivables investment using an aging schedule

Consider the case of Sugar and Spice Producers Inc.:

Sugar and Spice Producers Inc. sells on terms of 2/10 net 30. The companys management is concerned that its investment in accounts receivable is unintentionally growing due to its customers late payments, called arrearages.

In anticipation of being asked about this by the company treasurer, Ethan collected a sample of accounts receivable information. The sample represents 10% of the companys accounts receivable outstanding.

Assist Ethan by organizing the sample data into an aging schedule using the categories shown. Then calculate the volume of accounts receivable outstanding and the percentage of total receivables outstanding in each category to complete the statements that follow.

AccountNumber	Invoice Date	Amount Due
1883	December 22	$461.50
1788	March 14	417.70
2215	January 19	1,872.30
2461	February 23	3,142.85
2538	March 31	468.70
1521	November 10	861.50
2762	December 8	1,029.10
1576	March 30	281.90
2677	April 24	3,346.25
1398	February 13	713.90
	Total:	$12,595.70

Sugar and Spice Producers Inc. Aging Schedule, April 30
Days Late	Period Arrearage	Cumulative Arrearage
1-30 days	$3,346.25	$3,346.25
31-60 days	(3,856.75, 1,168.30, 3,345.25)	4,514.55
61-90 days	(1,168.30, 3,856.75, 3,346.25)	(8,371.30, 7,860.80, 5,682.85)
91+ days	(3,856.75, 3,346.25, 4,244.40)	12,595.70

An aging schedule provides insight into the condition of a firms accounts receivable. In this case, using the preceding sample data, the percentage of receivables that are 61-90 days late and 91+ days late are (9.28%, 30.62%, 33.54%) and (30.62%, 33.54%, 100%) , respectively. This has the potential to be a receivables and working capital management problem for Sugar and Spice, because it means that the total dollar value for all of its accounts receivable that are more than 61 days late is (3,856.80, 8,081.40, 80,814.01) . (Remember, the preceding sample data represents 10% of Sugar and Spices total volume of accounts receivable.)

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