Question

The total annual sales for Herman's Hardware Store was $1,246,135 and the total accounts receivable was $41,728. What was the average collection period to the nearestwhole day?12 days14 days18 days24 daysNone of these choices are correct.

Answer 1

The average collection Period formula is

`\text{Average collection period=}\frac{Account\text{ receivable}}{\frac{Annual\text{ sales}}{365}}`
`\begin{gathered} \text{Annual sales=\$1,246,135} \\ \text{Account receivable =\$41,728} \end{gathered}`

Substitute the values above in the average collection period

`\begin{gathered} \text{Average collection period =}(41728)/((1246135)/(365)) \\ =(41728)/(3414.06) \\ =12.222 \\ \approx12days \end{gathered}`

Hence the average collection period to the nearest whole day is 12 days