Tomlin Ltd's accounts receivable for year ended 31 December 2019 was $200 000. The number of days in receivables was 146 days. What were the credit sales for the year?
A) $80 000
B) $300 000
C) $500 000
D) This cannot be determined from the information provided

Question

Quizplus · Accepted Answer

The formula for calculating credit sales is:
Credit sales = Average accounts receivable x Number of days in period / 365
We are given the number of days in receivables as 146 days. To calculate the average accounts receivable, we need to know the beginning and ending accounts receivable balances, which are not provided in the question. Therefore, we cannot calculate the credit sales accurately. However, we can use the accounts receivable turnover ratio to estimate the credit sales. The accounts receivable turnover ratio is calculated as follows:
Accounts receivable turnover = Net credit sales / Average accounts receivable
The accounts receivable turnover can also be expressed as the number of times receivables are collected during the period. The accounts receivable turnover for Tomlin Ltd is:
Accounts receivable turnover = 365 / Number of days in receivables
Accounts receivable turnover = 365 / 146 = 2.5 times
We can estimate the credit sales by multiplying the average accounts receivable by the accounts receivable turnover ratio as follows:
Credit Sales = Average accounts receivable x Accounts receivable turnover
Credit Sales = $200 000 x 2.5 = $500 000
Therefore, the best choice is C, $500 000.

Tomlin Ltd's Accounts Receivable for Year Ended 31 December 2019