Question

Novak Corp. had accounts receivable of $140,000 on January 1, 2022. The only transactions that affected accounts receivable during 2022 were net credit sales of $3,795,000, cash collections of $3,725,000, and accounts written off of $20,000.

Required:
a. Compute the ending balance of accounts receivable.
b. Compute the accounts receivable turnover for 2016.
c. Compute the average collection period in days.

Answer 1

a $210,000

b 21.69 times

c 16.83 average days

Step-by-step explanation:

a. The ending balance of accounts receivable

= Accounts receivables at the beginning - Cash collections + Net Credit sales

Given that;

Accounts receivables at the beginning = $140,000

Cash collections = $3,725,000

Net Credit sales = $3,795,000

Ending balance of accounts receivable

= $140,000 + $3,795,000 - $3,725,000

= $210,000

b. Compute the accounts receivable turnover

= Net credit sales + [(Beginning account receivable + Ending account receivable) / 2]

= $3,795,000 ÷ [ ($140,000 + $210,000)/2]

= $3,795,000 ÷ $175,000

= 21.69 times

c. Compute the average collection period

= Average accounts receivable ÷ [Annual sales ÷ 365]

= $175,000 ÷ ($3,795,000 ÷ 365)

= $175,000 ÷ $10,397

= 16.83 average days to collect receivables