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21 October, 04:08

A firm has sales of $1.8 million, and 20 percent of the sales are for cash. The year-end accounts receivable balance is $225,000. What is the average collection period? (Use a 360-day year. Do not round intermediate calculations. Round your final answer to 2 decimal places.)

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  1. 21 October, 06:41
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    The average collection period is 56.25 days

    Explanation:

    The average collection period is the number of days' sales in receivables and calculated by using following formula:

    The number of days' sales in receivables = 360/Accounts receivable turnover ratio

    Accounts Receivable Turnover = Net Credit Sales/Accounts Receivable

    Net Credit sales = Total Sales - the sales are for cash = $1,800,000 - 20% x $1,800,000 = $1,440,000

    Accounts Receivable Turnover = $1,440,000/$225,000 = 6.4 times

    The number of days' sales in receivables = 360/6.4 = 56.25 days
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Home » Business » A firm has sales of $1.8 million, and 20 percent of the sales are for cash. The year-end accounts receivable balance is $225,000. What is the average collection period? (Use a 360-day year. Do not round intermediate calculations.
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