Question

Winsor Clothing Store had a balance in the Accounts Receivable account of $760,000 at the beginning of the year and a balance of $840,000 at the end of the year. Net credit sales during the year amounted to $7,200,000. The average collection period of the accounts receivable in terms of days was

A) 30 days.

B) 365 days.

C) 45.1 days.

D) 42.9 days.

Answer 1

The correct answer is 40.6 days. None of the options is correct.

Step-by-step explanation:

The average collection period of the accounts receivable is how long it takes the company to collect its accounts receivable. It is expressed as: (Average accounts receivable / Net credit sales) x 365 days.

Average collection period = [($760,000 + $840,000)/2 / $7,200,000] x 365 days = 40.6 days

This means it takes the company 40.6 days to collect its accounts receivable.