Effective credit management involves establishing credit standards for extending credit to customers, determining the company’s credit terms, 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. How a company handles its credit accounts, including methods of invoicing and collecting past-due accounts, is indicated by the company’s . Consider the case of Three Waters Co.: Three Waters Co.’s CFO has decided to take a closer look at the company’s credit policy. Three Waters Co. has annual sales of $384.4 million, and it currently has an accounts receivable balance of $45.4 million. The first step in analyzing the firm’s credit policy is to determine its days sales outstanding (DSO). Based on this information, Three Waters Co.’s DSO is . (Note: Use 365 days as the length of a year in all calculations.) The average DSO for Three Waters Co.’s industry is 53.9 days. Assuming that its sales stayed the same, what would be Three Waters Co.’s receivables balance if it maintained the industry average DSO? Three Waters Co.’s CFO thinks that the company has not done a very good job of enforcing its credit policy. The CFO believes that if the company were to better enforce its credit policy, it would reduce its DSO to 30 days; however, this will cause Three Waters Co. to lose 6% of its sales revenue. What would Three Waters Co.’s expected accounts receivables balance be if it decides to tighten its credit policy? $37,123,575 $29,698,860 $35,638,632 $32,668,746

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter9: Accounting For Receivables

Section: Chapter Questions

Problem 3MC: If a customer pays with a credit card and the service has been provided, which of the following...

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Effective credit management involves establishing credit standards for extending credit to customers, determining the company’s credit terms, 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.

How a company handles its credit accounts, including methods of invoicing and collecting past-due accounts, is indicated by the company’s .

Consider the case of Three Waters Co.:

Three Waters Co.’s CFO has decided to take a closer look at the company’s credit policy. Three Waters Co. has annual sales of $384.4 million, and it currently has an accounts receivable balance of $45.4 million. The first step in analyzing the firm’s credit policy is to determine its days sales outstanding (DSO).

Based on this information, Three Waters Co.’s DSO is . (Note: Use 365 days as the length of a year in all calculations.)

The average DSO for Three Waters Co.’s industry is 53.9 days. Assuming that its sales stayed the same, what would be Three Waters Co.’s receivables balance if it maintained the industry average DSO?

Three Waters Co.’s CFO thinks that the company has not done a very good job of enforcing its credit policy. The CFO believes that if the company were to better enforce its credit policy, it would reduce its DSO to 30 days; however, this will cause Three Waters Co. to lose 6% of its sales revenue. What would Three Waters Co.’s expected accounts receivables balance be if it decides to tighten its credit policy?

$37,123,575

$29,698,860

$35,638,632

$32,668,746

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