St.John's Inc.reported accounts receivable on January 1, 2013, of $500,000 and on December 31, 2013, of $550,000.Sales for the year were $4,000,000.What is their average collection period of accounts receivable for the year?

Question

Quizplus · Accepted Answer

Average collection period = (Accounts receivable / Average daily sales)
Average accounts receivable = (Beginning accounts receivable + Ending accounts receivable) / 2
= ($500,000 + $550,000) / 2 = $525,000
Average daily sales = Annual sales / 365 = $4,000,000 / 365 = $10,958.90
Average collection period = ($525,000 / $10,958.90) = 47.87 or approximately 48 days. Therefore, the best choice is C.

StJohn's Inc