8. Accounts receivable

Effective credit management involves establishing credit standards for extending credit to customers, determining the companys terms of credit, and setting up procedures for invoicing and collecting past-due accounts.

The following statement refers to a credit management policy. Select the best term to complete the sentence.

The conditions of the credit sale, including cash discounts and due dates, are indicated by the companys .

Consider the case of Western Gas & Electric Co.:

Western Gas & Electric Co.s CFO has decided to take a closer look at the companys credit policy. Western Gas & Electric Co. has annual sales of $396.3 million, and it currently has an accounts receivable balance of $46.3 million. The first step in analyzing the firms credit policy is to determine its days sales outstanding (DSO).

Based on this information, Western Gas & Electric Co.s DSO is . (Note: Use 365 days as the length of a year in all calculations. Do not round intermediate calculations. Round your answer to one decimal place.)

The average DSO for Western Gas & Electric Co.s industry is 51.2 days. Assuming that its sales stayed the same, what would be Western Gas & Electric Co.s receivables balance if it maintained the industry average DSO? (Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar.)

Western Gas & Electric Co.s CFO thinks that the company has not done a very good job of enforcing its credit policy. The CFO believes that if the company were to better enforce its credit policy, it would reduce its DSO to 30 days; however, this will cause Western Gas & Electric Co. to lose 7% of its sales revenue. What would Western Gas & Electric Co.s expected accounts receivables balance be if it decides to tighten its credit policy? (Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar.)

$25,748,643

$36,351,025

$30,292,521

$27,263,269