The financial statements of Gervais Manufacturing Company report net sales of $500,000 and accounts receivable of $80,000 and $40,000 at the beginning and end of the year, respectively. What is the average collection period for accounts receivable in days?

Question

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Average Collection Period = (Accounts Receivable / Net Sales) * 365

Beginning accounts receivable = $80,000
Ending accounts receivable = $40,000
Net sales = $500,000

Average accounts receivable = (Beginning accounts receivable + Ending accounts receivable) / 2 = ($80,000 + $40,000) / 2 = $60,000

Average Collection Period = ($60,000 / $500,000) * 365 = 43.8 days

The Financial Statements of Gervais Manufacturing Company Report Net Sales