Morning Star has credit sales of $1,032,800, costs of goods sold of $662,350, average accounts receivable of $86,300, and average accounts payable of $92,600. On average, how long does it take Morning Star's credit customers to pay for their purchases?

Question

Quizplus · Accepted Answer

To calculate the average time it takes for Morning Star's credit customers to pay for their purchases, we use the accounts receivable turnover ratio formula, which is sales divided by average accounts receivable. Then, to find the average collection period, we divide 365 days by the accounts receivable turnover ratio. The calculation is as follows: Accounts Receivable Turnover Ratio = $1,032,800 / $86,300 = 11.96. Average Collection Period = 365 / 11.96 ≈ 30.50 days.

Morning Star Has Credit Sales of $1,032,800, Costs of Goods