Swiss Clothing Store had a balance in the Accounts Receivable account of $920000 at the beginning of the year and a balance of $980000 at the end of the year. Net credit sales during the year amounted to $6650000. The average collection period of the receivables in terms of days was
A) 53.7 days.
B) 52.1 days.
C) 30 days.
D) 50.7 days.

Question

Quizplus · Accepted Answer

Average Collection Period = (Accounts Receivable / Average Daily Credit Sales)
                  
Average Daily Credit Sales = Annual Credit Sales / 365 days
                  
Accounts Receivable Turnover = Annual Credit Sales / Average Accounts Receivable
                  
Accounts Receivable Turnover = (Net Credit Sales / Accounts Receivable)
                  
Therefore, Average Collection Period = 365 / Accounts Receivable Turnover

In this case,
                  
Accounts Receivable Turnover = Net Credit Sales / Average Accounts Receivable
                  
Accounts Receivable Turnover = 6650000 / ((920000+980000)/2)
                  
Accounts Receivable Turnover = 6650000 / 950000
                  
Accounts Receivable Turnover = 7

Average Collection Period = 365 / 7
                  
Average Collection Period = 52.14 days
                  
Therefore, the average collection period of the receivables in terms of days was 52.1 days.

Swiss Clothing Store Had a Balance in the Accounts Receivable