The financial statements of Gervais Manufacturing Company report net sales of $500,000 and accounts receivable of $80,000 and $40,000 at the beginning and end of the year, respectively. What is the average collection period for accounts receivable in days?

The answer is: 44 days

Explanation:

First we have to calculate accounts receivable turnover for Gervais Manufacturing:

= $500,000 / [ ($80,000 + $40,000) / 2] = $500,000 / $60,000 = 8.33 times

Then to calculate the average collection period for accounts receivable we:

= 365 days / 8.33 = 43.8 days ≈ 44 days