The financial statements of Hudson Manufacturing Company report net sales of $500,000 and accounts receivable of $50,000 and $30,000 at the beginning and end of the year, respectively. What is the average collection period for accounts receivable in days?

Question

Quizplus · Accepted Answer

First, we need to find the average balance of accounts receivable during the year: 
Average accounts receivable = (Beginning accounts receivable + Ending accounts receivable) / 2 
= ($50,000 + $30,000) / 2 
= $40,000

Then, we can calculate the average collection period: 
Average collection period = (Accounts receivable / Net sales) x 365 days 
= ($40,000 / $500,000) x 365 days 
= 29.2 days

Therefore the answer is B.

The Financial Statements of Hudson Manufacturing Company Report Net Sales