Question

Rhodes Company reports the following information for the Year 1 fiscal year: Sales on account$650,000 Accounts receivable$70,000 Allowance for doubtful accounts$4,000 Determine the average number of days it takes Rhodes to collect its accounts receivable. (Round intermediate calculations to 2 decimal places.)

Answer 1

The average number of days it takes Rhodes Company to collect its accounts receivable is approximately 39 days, calculated by dividing annual sales on account by the average accounts receivable and then dividing the number of days in a year by the turnover ratio.

Step-by-step explanation:

To determine the average number of days it takes Rhodes Company to collect its accounts receivable, we use the accounts receivable turnover ratio. This ratio is calculated by dividing total sales on account by the average accounts receivable. Then we use the turnover ratio to calculate the average collection period.

The accounts receivable turnover ratio is calculated as follows:

• Sales on Account: $650,000
• Average Accounts Receivable: $70,000
• Accounts Receivable Turnover Ratio: $650,000 / $70,000 = 9.29 (rounded to two decimal places)

To find the average number of days to collect accounts receivable, we divide the number of days in a year by the turnover ratio:

• Days in a Year: 365 days
• Average Collection Period: 365 days / 9.29 = 39.29 days (rounded to two decimal places)

Therefore, it takes Rhodes Company approximately 39 days on average to collect its accounts receivable.

Answer 2

37 days

Step-by-step explanation:

Given:

Credit sales during the year = $650,000

Account receivable = $70,000

Allowance for doubtful accounts = $4,000

Average collection days = ?

Computation of Debtor turn over:

Debtor turn over = Credit sales during the year / (Account receivable - Allowance for doubtful accounts)

Debtor turn over = $650,000 / ($70,000 - $4,000)

Debtor turn over = $650,000 / ($66,000)

Debtor turn over = 9.84848485

Computation of Average collection days:

Average collection days = 365 / Debtor turn over

Average collection days = 365 / 9.84848485

Average collection days = 37.06 = 37 days (Approx)