Question

If a company has an accounts receivable turnover ratio of 7.4, ending accounts receivable of $780,000, and average accounts receivable of $740,000, what is its average days to collect receivables?

Answer 1

The average days to collect receivables is calculated by dividing 365 days by the accounts receivable turnover ratio which is 7.4 in this case. The result is approximately 49.32 days.

Step-by-step explanation:

To calculate the average days to collect receivables using the accounts receivable turnover ratio, we use the formula for the average collection period. The formula is:

365 days ÷ Accounts Receivable Turnover Ratio

Given that the company has an accounts receivable turnover ratio of 7.4, you would perform the following calculation:

365 days ÷ 7.4 = 49.32 days (rounded to two decimal places)

Therefore, the company's average days to collect receivables is approximately 49.32 days, indicating on average how long it takes the company to collect payments from its customers.