Question

Basic Design had net credit sales of $400,000 during the year and an average accounts receivable balance of $40,000. On average, how many days did it take Basic Design to collect Accounts Receivable (round to two decimal places)

Answer 1

36.50 days

Step-by-step explanation:

The computation of the number of days to collect is shown below:

As we know that

Account receivable turnover ratio = Net credit sales ÷ Average accounts receivable

where,

Net credit sales is $400,000

And, the Average accounts receivable is $40,000

So, the accounts receivable turnover ratio would be

= $400,000 ÷ $40,000

= 10 times

Now the number of days collected is

= Total number of days in a year ÷ Accounts receivable turnover ratio

= 365 days ÷ 10

= 36.50 days