Question

the ward company has provided the following information: net sales totaled $880,000. beginning net accounts receivable was $71,500. ending net accounts receivable was $98,000. what was ward's average collection period?

Answer 1

To calculate Ward's average collection period, find the average accounts receivable, calculate the accounts receivable turnover ratio, and then divide 365 days by this ratio. The result is approximately 35.16 days.

Step-by-step explanation:

The student asked how to calculate Ward's average collection period based on the given financial data.

To solve this, we first need to find the average accounts receivable by adding the beginning and ending accounts receivable and dividing by two. Then, we divide the net sales by this average accounts receivable to determine the accounts receivable turnover ratio. Finally, the average collection period is found by dividing 365 days by the accounts receivable turnover ratio.

The formula to calculate the average collection period (ACP) is as follows:

ACP = (365 days / Accounts Receivable Turnover Ratio)

Firstly, calculate the average accounts receivable:

Average Accounts Receivable = (Beginning A/R + Ending A/R) / 2

Average Accounts Receivable = ($71,500 + $98,000) / 2

Average Accounts Receivable = $84,750

Then, calculate the accounts receivable turnover ratio:

Accounts Receivable Turnover Ratio = Net Sales / Average Accounts Receivable

Accounts Receivable Turnover Ratio = $880,000 / $84,750

Accounts Receivable Turnover Ratio ≈ 10.38

Finally, calculate the average collection period:

ACP = 365 days / 10.38

ACP ≈ 35.16 days

Therefore, the average collection period for Ward Company is approximately 35.16 days.