Question

8. Accounts receivable Effective credit management involves establishing credit standards for extending credit to customers, determining the company's 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 minimum financial strength a customer must have to be granted credit is indicated by the company's Consider the case of Ziff Corp.: Ziff Corp.'s CFO has decided to take a closer look at the company's credit policy. Ziff Corp. 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 firm's credit policy is to determine its days sales outstanding (DSO).

Drop-down options: (collection policy, terms of credit, credit standards), (29.8 days, 32.0 days, 42.6 days, 36.2 days), ($58,370,082, $55,590,554, $47,251,971, $61,149,609)

Answer 1

Answer a.

The minimum financial strength a customer must have to be granted credit is indicated by the company’s credit standards.

Answer b.

Days sales outstanding = 365 * Accounts receivable / Annual sales
Days sales outstanding = 365 * $46,300,000 / $396,300,000
Days sales outstanding = 42.6 days

Answer c.

Days sales outstanding = 365 * Accounts receivable / Annual sales
51.2 = 365 * Accounts receivable / $396,300,000
Accounts receivable = $55,590,554

Answer d.

Annual sales = $396,300,000 - 5% * $396,300,000
Annual sales = $376,485,000

Days sales outstanding = 365 * Accounts receivable / Annual sales
30 = 365 * Accounts receivable / $376,485,000
Accounts receivable = $30,943,950