Question

Lou's Clothing Store had a balance in the Accounts Receivable account of $700,000 at the beginning of the year and a balance of $1,000,000 at the end of the year. Net credit sales during the year were $6,650,000. The average collection period of the receivables was nearest Select one: a. 15 days. b. 8 days. c. 55 days. d. 47 days. e. 7 days.

Answer 1

d) Receivable days = 47 days

Step-by-step explanation:

Average collection(receivable) days is the average length of time it takes a business to collect cash from customers in respect of credit sales made on account. The shorter the better

The ratio can be calculated as follows:

Collection (receivable days) =( average receivables / net credit sales) × 365 days

Average receivable = opening + closing receivable balances/2

Average receivables =( 700,000 + 1,000,000)/2

= 850,000

Receivable days = (850,000/ 6,650,000) × 365 days

= 46.65 days

Receivable days = 47 days