Question

Net credit sales are 900,000, average inventory totals 60,000, average net receivables total 50,000, and the allowance for doubtful accounts totals 5,000. How much is the average collection period (also known as the days in receivable ratio)?

Answer 1

The average collection period is calculated using the formula: Average Collection Period = (Average Accounts Receivable / Net Credit Sales) x 365. By plugging in the given values, we find that the average collection period is approximately 20.28 days.

Step-by-step explanation:

To calculate the average collection period, we need to use the formula: Average Collection Period = (Average Accounts Receivable / Net Credit Sales) x 365.

First, we need to find the average accounts receivable. To do this, we take the average of the beginning and ending net receivables: Average Receivables = (Beginning Net Receivables + Ending Net Receivables) / 2.

Using the values given, the average accounts receivable would be (50,000 + 50,000) / 2 = 50,000. Next, we can plug in this value along with the net credit sales to find the average collection period: Average Collection Period = (50,000 / 900,000) x 365 = 20.28 days. Therefore, the average collection period is approximately 20.28 days.