Question

Amanda's Interior Design has credit sales of $783,000, costs of goods sold of $418,000, and average accounts receivable of $107,900. How long does it take its credit customers to pay for their purchases?

Answer 1

The 50.30 days are required to take its credit customers to pay for their purchases.

Step-by-step explanation:

For computing the average collection period, we have to use the formula of the average collection period.

Average collection period = Average accounts receivable ÷ Credit sales × total number of days in a year

= $107,900 ÷ $783,000 × 365

= 0.13780 × 365

= 50.30 days

We assume 365 days in a year

The cost of goods sold is irrelevant. Thus, it is not considered in the computation part.

Hence, 50.30 days are required to take its credit customers to pay for their purchases.