Question
Sales totaled $278 million. The average collection period for all sales is 30 days. As a for example, I would interpret that as sales made
Sales totaled $278 million. The average collection period for all sales is 30 days. As a "for example," I would interpret that as sales made in July are collected in August.
Sales are not even during the year. The company makes 40 percent of their sales during November and December, but otherwise makes sales at an even rate during the year.
The company is not on a calendar year. Instead, the company has a fiscal year of June 30.
Required:
a. What will be the accounts receivable balance for the company on June 30?
b. Let's think about a reason to disconnect the sales figures from the billings to customers. The measurement of sales is governed by some fairly complex rules, including an assessment of how many performance obligations are in a sales contract. The billings and collections from customers is governed by the sales contract with the customer. Does this disconnect make activity measures, like days in receivables, computed from the financial statements more useful or less useful? And, explain your conclusion.
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