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black company has net credit sales of $500,000, an asset turnover ratio of 3, an inventory turnover ratio of 5, and a receivables turnover ratio of 6. what is the average collection period?

User Xirema
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1 Answer

14 votes
14 votes

Final answer:

The average collection period for Black Company is calculated using the receivables turnover ratio and is approximately 60.83 days.

Step-by-step explanation:

The average collection period for Black Company is the average number of days it takes for the company to collect payments from its credit sales. To calculate the average collection period, we need to use the receivables turnover ratio, which is calculated as net credit sales divided by the average accounts receivable. The formula for average collection period is 365 days divided by the receivables turnover ratio.

Given:
Net credit sales = $500,000
Receivables turnover ratio = 6
Now, we can calculate the average collection period:
Average collection period = 365 days / Receivables turnover ratio
Average collection period = 365 days / 6
Average collection period = 60.83 days

Therefore, it takes Black Company an average of approximately 60.83 days to collect its receivables.

User Spitz
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