Trendy Traders reported total sales amounting to $1,000,000 in the year 2015, of which 80% were on credit. At 31 December, customers owed $100,000. If the firm operates for 365 days a year, how long, on average, does it take to collect money from its debtors?
A) 46 days
B) 10 days
C) 13 days
D) 29 days

Question

Quizplus · Accepted Answer

To find the average collection period, we first calculate the average accounts receivable. Since 80% of $1,000,000 sales were on credit, credit sales amount to $800,000. The average accounts receivable is $100,000. The average collection period is calculated as (Average Accounts Receivable / Credit Sales) * 365 = ($100,000 / $800,000) * 365 = 45.625 days, which rounds to 46 days.

Trendy Traders Reported Total Sales Amounting to $1,000,000 in the Year