If Crossroads International has $3,000,000 in total sales (75% on credit) and receivables of $500,000, what is its average collection period? Assume a 360-day calendar year.
A) 80 days
B) 60 days
C) 4.5 days
D) 6 days

Question

Quizplus · Accepted Answer

The average collection period is calculated by dividing the accounts receivable by the average daily sales. Since 75% of the $3,000,000 in total sales are on credit, the credit sales amount to $2,250,000. The average daily sales on credit are $2,250,000 / 360 = $6,250. Therefore, the average collection period is $500,000 / $6,250 = 80 days.

If Crossroads International Has $3,000,000 in Total Sales (75% on Credit)