Question

A firm has sales of $1.4 million, and 10 percent of the sales are for cash. The year-end accounts receivable balance is $205,000. W What is the average collection period? Note: Use a 360-day year. Do not round intermediate calculations. Round your final answer to 2 decimal​

Answer 1

To calculate the average collection period, you can use the following formula:

Average Collection Period = (Accounts Receivable / (Credit Sales / Number of Days in Year))

First, let's calculate the credit sales:

Credit Sales = Total Sales - Cash Sales
Credit Sales = $1,400,000 - (0.10 * $1,400,000)
Credit Sales = $1,400,000 - $140,000
Credit Sales = $1,260,000

Now, we can calculate the average collection period:

Average Collection Period = ($205,000 / ($1,260,000 / 360))
Average Collection Period = ($205,000 / ($1,260,000 / 360))
Average Collection Period = ($205,000 / $3,510)
Average Collection Period ≈ 58.41 days (rounded to two decimal places)

So, the average collection period is approximately 58.41 days.