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Hi Mr Moffat,
I am struggling to understand following calculation on your answer. Where is 26,667 is coming from. Well i understand it’s 1% discount so it a cost but why is it deducted form $4m to get proposed receivables. Shouldn’t it be straight 26 / 365 x $4m?Proposed level of receivables = (4,000,000 – 26,667) × (26/365) = $283,000
I will appreciate your explanation on this.
Thanks very much.
Have you watched the free lectures on the management of receivables (because I do talk about this in the lecture)?
Because of the discount, the total received will be 4M less the discount.
There are arguments for basing the receivables on the full sales of 4M, or alternatively on the cash to be received (4M less the discount). The examiner always accepts either (even though the answer will be different, although only ever a little bit different).
(I hope you are watching the lectures, because there is no point in using the lecture notes otherwise. It is in the lectures that we explain and expand on the lectures notes – the notes on their own are not enough)
Thanks very much for your help. I will go back to lecture again, i must say that i must have missed that point in particular.
Thanks for your help again.
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