Question

Modern Textiles Company has an accounts receivable turnover of 7.96 for the current year. Assuming 365 days a year, what was the company's average collection period this year?

a) 33 days
b) 36 days
c) 46 days
d) 50 days

Answer 1

The average collection period for Modern Textiles Company this year is 46 days.

Step-by-step explanation:

The accounts receivable turnover ratio measures how quickly a company collects payments from its customers. It is calculated by dividing net credit sales by the average accounts receivable. The formula for average collection period is 365 divided by the accounts receivable turnover ratio. In this case, the accounts receivable turnover is given as 7.96. So, the average collection period can be calculated as 365 / 7.96 = 45.85 days. Since the answer options are rounded to the nearest whole number, the company's average collection period this year is 46 days (option c).