Terry's hardware normally takes 27 days to pay for average daily credit purchases of $9,530.  Its average daily sales are $10,680, and it collects accounts in 32 days. A. What is its net credit position?  Compute its account receivable and accounts payable and subtract the latter from the former. Accounts receivable = Average daily credit sales x Average collection period Accounts payable = Average daily credit purchases x Average payment period B. If the firm extends its average payment period from 27 days to 37 days (all else remains the same), what is the firm's new net credit position?  Has it improved its cash flow?

Question

Terry's hardware normally takes 27 days to pay for average daily credit purchases of $9,530.  Its average daily sales are $10,680, and it collects accounts in 32 days.

A. What is its net credit position?  Compute its account receivable and accounts payable and subtract the latter from the former.

Accounts receivable = Average daily credit sales x Average collection period

Accounts payable = Average daily credit purchases x Average payment period

B. If the firm extends its average payment period from 27 days to 37 days (all else remains the same), what is the firm's new net credit position?  Has it improved its cash flow?

 

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