Question

On average your firm sells $33,300 of items on credit each day. Your average inventory period is 37 days and your operating cycle is 57 days. What is your average accounts receivable balance?

a.$1,232,100
b.$1,265,400
c.$666,000
d.$1,332,000
e.$1,898,100

Answer 1

Option (c), To find the average accounts receivable balance, multiply the average daily credit sales by the difference between the operating cycle and the inventory period. For this question, the calculation is $33,300 times 20 days, resulting in $666,000.

Step-by-step explanation:

The student is asking a question related to the calculation of the average accounts receivable balance based on given business operation metrics. To find the average accounts receivable balance, which represents the money owed to a company by its debtors, we can use the operating cycle and the average daily credit sales information provided.

The formula to calculate the accounts receivable balance is:

Average Daily Credit Sales × (Operating Cycle - Inventory Period)

In this case, we have:

• Average Daily Credit Sales = $33,300
• Operating Cycle = 57 days
• Inventory Period = 37 days

Substitute these values into the formula:

$33,300 × (57 - 37) = $33,300 × 20 = $666,000

Therefore, the average accounts receivable balance is $666,000, which matches option (c) from the question.