Question

Swifty Clothing Store had a balance in the Accounts Receivable account of $764000 at the beginning of the year and a balance of $812000 at the end of the year. Net credit sales during the year amounted to $7190500. The average collection period of the accounts receivable in terms of days was

a. 29.4 days.
b. 80.0 days.
c. 41.0 days.
d. 40.0 days.

Answer 1

The average collection period for Swifty Clothing Store's accounts receivable is calculated using the average accounts receivable and net credit sales which results in a collection period of approximately 40.0 days. Thus, the correct option for the average collection period is 40.0 days.

Step-by-step explanation:

The student is asking for the calculation of the average collection period of the accounts receivable for Swifty Clothing Store. To determine this, we calculate the average accounts receivable and then divide the net credit sales by the average accounts receivable to get the accounts receivable turnover. Finally, we use this turnover to calculate the average collection period by dividing the number of days in the year by the accounts receivable turnover.

First, the average accounts receivable is calculated as follows:

(Beginning Accounts Receivable + Ending Accounts Receivable) / 2
= ($764,000 + $812,000) / 2
= $1,576,000 / 2
= $788,000

Next, we find the accounts receivable turnover:

Net Credit Sales / Average Accounts Receivable
= $7,190,500 / $788,000
≈ 9.12 times

Finally, the average collection period is:

365 days / Accounts Receivable Turnover
= 365 days / 9.12 times
≈ 40.0 days

Therefore, the correct option for the average collection period of the accounts receivable is 40.0 days (d).