Turner's offers credit terms of net 30 with payments received an average of 2.8 days past their due date. Annual credit sales are $2.38 million. What is the average book value of accounts receivable? Assume a 365-day year.
A) $213,874
B) $223,333
C) $211,667
D) $215,407
E) $223,593

Question

Quizplus · Accepted Answer

The average book value of accounts receivable is equal to the average accounts receivable balance, which is equal to the annual credit sales multiplied by the average collection period. The average collection period is equal to the credit period plus the average delay in payment. The credit period is 30 days, and the average delay in payment is 2.8 days, so the average collection period is 32.8 days. The annual credit sales are $2.38 million, so the average accounts receivable balance is $2.38 million * 32.8 days / 365 days = $213,874.

Turner's Offers Credit Terms of Net 30 with Payments Received