The treasurer of Gould's Stores, Inc., was interested in what effect, if any, new credit terms have had on collections of customer accounts. The usual 30-day payment period was shortened to 20 days in an attempt to reduce the investment in accounts receivable. The following information for the current year and the preceding year (prior to the payment period change) is available. (see attached) Current Year Preceding Year Accounts Receivable (Net of Bad Debt Allowance) $1,392,790 $1,207,393 Credit Sales 13,035,085 11,597,327 My answer (is this accurate): We need to calculate the average collection period so see if there has been any effect. Average collection period (ACP) = Accounts Receivable/Per Day sales For preceding year ACP = 1,207,393/(11,597,327/365) = 38 days For current year ACP = 1,392,790/(13,035,085/365) = 39 days The effect has been opposite, the payment period has been reduced from 30 days to 20 days but the time taken for the customers to pay has increased from 38 to 39 days. The investment in accounts receivable has increased instead of decreasing. With an ACP of 38 days, the AR amount would be in the current year as (13,035,085/365) X 38 = 1,357,077. It is now 1,392,790. The receivable investment actually increased by $35,713