Question

Bramble Clothing Store had a balance in the Accounts Receivable account of $771,000 at the beginning of the year and $867,000 at the end of the year. Net credit sales during the year amounted to $5,978,700. What is the average collection period of the accounts receivable in days?

a) 39 days
b) 45 days
c) 52 days
d) 60 days

Answer 1

The average collection period for the accounts receivable is calculated using the average accounts receivable and net credit sales, which results in approximately 50 days. The closest given answer choice is 52 days.

Step-by-step explanation:

The question asks for the calculation of the average collection period for accounts receivable, which is a business metric used to assess how efficiently a company is managing its receivables. To calculate the average collection period, we need to use the formula:
Average Collection Period = (Average Accounts Receivable / Net Credit Sales) × Days in the period.

First, we calculate the Average Accounts Receivable for the year by taking the sum of the opening and closing balances and dividing by 2:
(771,000 + 867,000) / 2 = 819,000.

We then use the formula to find the average collection period:
(819,000 / 5,978,700) × 365 = 49.95 ≈ 50 days.

Although not exactly one of the choices provided, the closest answer to 50 days from the given options is 52 days (option c).