ESTIMATING THE MEAN OF ACCOUNTS RECEIVABLE

 ESTIMATING THE MEAN OF ACCOUNTS RECEIVABLE

A Financial Manager wants to estimate the average of all accounts receivable, where this average is taken over the population of all customer accounts. Because the company has approximately 10,000 accounts, an exhaustive enumeration of all accounts receivable is IMPRACTICAL. Therefore, the Financial Manager randomly samples 100 of the accounts. The data from the sample appear in https://github.com/alcadelina/business-analytics-excel-data as file Auditing Receivables.xlsx.

         What can the Financial Manager conclude from this sample?

Objective:   To illustrate the meaning of standard error of the mean in a sample of accounts receivable?

The data:

Step 1. Type the required data.

Step 2. Compute the Sample Mean using the formula.

Step 3. Compute the Standard Deviation using the formula.

Step 4. Compute the Std Error of the Mean using the formula.

Step 5. Compute the first population count using the formula.

Conclusion:

1.      The Sample Mean P279 is the best guess for the average of the receivables from all 10,000 accounts.

2.      The Standard Error P42 provides a measure of the accuracy of the P279 ESTIMATE.

3.      There is a 95% chance that the estimate differs by no more than two standard errors (about P84) from the true but unknown population mean.

4.      The Finance Manager can approximately say that the mean from all 10,000 accounts is within the interval of P279 +/- P84 or between P195 and P363.

Arnel Lopez Cadeliña, MBA, REA, CFA (Investment Foundation Certificate)