If a firm has $400,000 in credit sales and $80,000 in average accounts receivable, what will happen to average days collections if accounts receivable increases?
A) Average days collections will stay the same.
B) Average days collections will decrease.
C) Average days collections will increase.
D) Cannot tell with the information provided.

Question

Quizplus · Accepted Answer

Average days collections, also known as the average collection period, measures how long it takes for a company to collect its receivables. It is calculated by dividing the average accounts receivable by the total credit sales and then multiplying by the number of days in the period. If accounts receivable increases while credit sales remain constant, the ratio will increase, meaning it takes longer to collect receivables, thus increasing the average days collections.

If a Firm Has $400,000 in Credit Sales and $80,000