Question

In 2012, Grossfeld Company has net credit sales of $1,600,000 for the year.It had a beginning accounts receivable (net) balance of $108,000 and an ending accountsreceivable (net) balance of $120,000. Compute Grossfeld Company's (a) receivablesturnover and (b) average collection period in days.

Answer 1

Answer: a. 14.04; b. 26 days

Explanation:

Net credit sales = $1,600,000

Beginning account receivable = $108,000.

Ending account receivable = $120,000

The Amaverage accounts receivables will be:

= ($108000 + $120000)/2

= $228000/2

= $114,000

Accounts Receivable turnover will then be calculated as:

= Net sales/Average accounts receivables

= $1600000/$114000

= 14.04

b) Average collection period will be calculated as:

= Number of days in a year/Accounts receivable turnover

= 365/14.04

= 25.997

= 26 days approximately