Question

McGriff Dog Food Company 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? That is, compute its accounts 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

Short answer

The net credit position is 84,450.

Step-by-step solution

Information provided in the question

Average credit purchases = $9,530

Average payment period = 27 days

Average daily sales = $10,680

Average collection period = 32 days

Calculation of accounts receivables

The accounts receivables is $341,760.

$\begin{array}{rcl}\mathrm{Accounts}\mathrm{receivables}& =& \mathrm{Average}\mathrm{daily}\mathrm{credit}\mathrm{sales}\times \mathrm{Average}\mathrm{collection}\mathrm{period}\\ & =& \$10,680\times 32\mathrm{days}\\ & =& \$341,760\end{array}$

Calculation of accounts payable

The accounts payable is $257,310.

$\begin{array}{rcl}\mathrm{Accounts}\mathrm{payable}& =& \mathrm{Average}\mathrm{daily}\mathrm{credit}\mathrm{purchase}\times \mathrm{Average}\mathrm{payment}\mathrm{period}\\ & =& \$9,530\times 27\mathrm{days}\\ & =& \$257,310\end{array}$

Calculation of net credit position

The net credit position is $84,450.

$\begin{array}{rcl}\mathrm{Net}\mathrm{credit}\mathrm{position}& =& \mathrm{Accounts}\mathrm{receivables}-\mathrm{Accounts}\mathrm{payable}\\ & =& \$341,760-\$257,310\\ & =& \$84,450\end{array}$