ABC Co. has an average collection period of 90 days. Total credit sales for the year were $6,000,000. What is the balance in accounts receivable at year-end?
A)$150,000
B)$2,250,000
C)$1,500,000
D)$40,000

Question

Quizplus · Accepted Answer

The average collection period of 90 days means that it takes ABC Co. an average of 90 days to collect payment from its customers. This can be used to calculate the accounts receivable balance at year-end using the following formula:

Accounts receivable = (Average daily credit sales x Average collection period)

Average daily credit sales = (Total credit sales for the year ÷ 365) = ($6,000,000 ÷ 365) = $16,438.36

Accounts receivable = ($16,438.36 x 90) = $1,479,450

Therefore, the balance in accounts receivable at year-end is $1,500,000 (rounded to the nearest thousand), which corresponds to answer choice C.

ABC Co Has an Average Collection Period of 90 Days