Rhodes Company reports the following information for the Year 1 fiscal year: Determine the average number of days it takes Rhodes to collect its accounts receivable. (Round intermediate calculations to 2 decimal places.)

Question

Rhodes Company reports the following information for the Year 1 fiscal year:  Determine the average number of days it takes Rhodes to collect its accounts receivable. (Round intermediate calculations to 2 decimal places.)

Quizplus · Accepted Answer

The formula for average collection period is:
Accounts receivable / (Credit sales / Number of days)
Accounts receivable at year end are $150,000.
Credit sales for the year can be calculated by adding the beginning accounts receivable of $100,000 to the sales for the year of $500,000 and then subtracting the ending accounts receivable of $150,000. This gives credit sales of $450,000.
The number of days in the year is 365. Therefore,
Average collection period = $150,000 / ($450,000 / 365) = 37. Therefore, it takes Rhodes 37 days on average to collect its accounts receivable.

Rhodes Company Reports the Following Information for the Year 1