7-7 Darla's Cosmetic has annual cred it sales of $1, 440, 000 and an average collection period of 45 days in 2004. Assume a 360-day year. What is the company's average accounts receivable balance? Accounts receivable are equal to the average daily cred it sales times the average collection period Solution: Thompson wood Products $1,440,000 annual credit sales/360=$4, 000 per day credit sales 84,000 credit sales x 45 average collection period=$180,000 average accounts receivable balance 7-8 In Problem 7, if accounts receivable change to $200,000 in the year 2005, whi cred it sales are $1.800.000. should we assume the firm has a more or a lesse lenient cred it policy? Soluti Darlas Cosmetics(Continued To determine if there is a more lenient credit policy, compute the average collection period Average collection period= Accounts Receivable Average daily credit sales $20000 $l800000/360 $200000 40 days $5,000 Since the firm has a shorter average collection period, it appears that the firm does not have a more lenient credit policy S-249 CopyrightC2005 by The McGraw-Hill Companies, IncCopyright © 2005 by The McGraw-Hill Companies, Inc. S-249 7-7. Darla’s Cosmetic has annual credit sales of $1,440,000 and an average collection period of 45 days in 2004. Assume a 360-day year. What is the company's average accounts receivable balance? Accounts receivable are equal to the average daily credit sales times the average collection period. Solution: Thompson Wood Products $1,440,000 annual credit sales/360 = $4,000 per day credit sales $4,000 credit sales x 45 average collection period = $180,000 average accounts receivable balance 7-8. In Problem 7, if accounts receivable change to $200,000 in the year 2005, while credit sales are $1,800,000, should we assume the firm has a more or a less lenient credit policy? Solution: Darla’s Cosmetics (Continued) To determine if there is a more lenient credit policy, compute the average collection period. 40 days $5,000 $200,000 $1,800,000/ 360 $200,000 Average daily credit sales Accounts Receivable Average collection period = = = = Since the firm has a shorter average collection period, it appears that the firm does not have a more lenient credit policy