Accounts Receivable, ACP Credit Policy

1. Fitzgerald Company has credit terms of 2/15, n60. The historical payment patterns of its customers are as follows:

•  40 percent of customers pay in 15 days.

•  57 percent of customers pay in 60 days.

•  3 percent of customers pay in 100 days.

Annual sales are $730,000. Assume there are 365 days in a year.

a.  Calculate the average collection period (ACP).

b.  What is the accounts receivable (AR) assuming all goods are sold on credit?

Accounts Receivable, ACP Credit Policy

2. If Fitzgerald in problem 19-3 decides to adopt more stringent credit terms of 2/10, n30, sales are expected to drop by 10 percent, but the following improved payment pattern of its customers is expected:

•  40 percent of customers will pay in 10 days.

•  58 percent of customers will pay in 30 days.

•  2 percent of customers will pay in 100 days.

Calculate the new average collection period (ACP) and accounts receivable (AR) assuming all goods are sold on credit.