Question 2 (20 marks)

a) b) Discuss how the Average Collection Period (ACP) and the Aging Schedule may be used by firms to monitor its accounts receivable. (4 marks) The table below shows the Aging Schedule of Green Resources Ltd's accounts receivable. Evaluate each statement below and explain if you agree with the statement. i) ii) iii) iv) Less than/equal to 30 days (Current) 31 days to 60 days 61 days to 90 days Over 90 days TOTAL Accounts Receivable Balance Outstanding 2 Less than half of the firm's accounts receivable are overdue. The accounts receivable are grouped according to the number of days taken to collect from them. $85,000 $50,000 $25,000 $20,000 $180,000 FIN2101 BUSINESS FINANCE The accounts receivable in the "Over 90 days" age group are the customers with lowest credit risk. The schedule helps identify those accounts which are overdue and are at risk of turning into bad debts. (8 marks)

a) Discuss how the Average Collection Period (ACP) and the Aging Schedule may be used by firms to monitor its accounts receivable. (4 marks) b) The table below shows the Aging Schedule of Green Resources Ltd's accounts receivable. Evaluate each statement below and explain if you agree with the statement. i) Less than half of the firm's accounts receivable are overdue. ii) The accounts receivable are grouped according to the number of days taken to collect from them. 2 FIN2101 BUSINESS FINANCE iii) The accounts receivable in the "Over 90 days" age group are the customers with lowest credit risk. iv) The schedule helps identify those accounts which are overdue and are at risk of turning into bad debts. (8 marks)