1 Baker Brothers has a DSO of 40 days and its annual sales a

1. Baker Brothers has a DSO of 40 days, and its annual sales are $7,300,000. What is its accounts receivable balance? Assume that it uses a 365-day year.

Solution

1. Computation of Accounts Receivable

DSO ratio = accounts receivable / (annual sales / 365days)

Accounts Receivable = (Annual Sales / 365 days) * DSO

Accounts Receivable = ($7300000 / 365 days) * 40

Accounts Receivable = $800000