The Gold Coast Professional Conference Organisation company took an average of 32 days to collect its accounts receivable in 2010. In 2011, it incurred $70,000 in expenses when generating sales of $250,000. Its accounts receivable balance was $25,000 at the start of 2011 and $31,250 at the end of the year.
Compared to 2010, during 2011 has the company been faster or slower in collecting its accounts receivable? (Assume a 360-day year).

Question

Quizplus · Accepted Answer

To answer this question, we first need to calculate the average collection period for 2011. The formula for this is:
Average Collection Period = (Accounts Receivable / Annual Net Credit Sales) x 360
Plugging in the given values:
Average Collection Period = (($25,000 + $31,250) / 2) / $250,000) x 360 = 40.5 days
Comparing this to the 32 days in 2010, we can see that the company has been 8.5 days slower in collecting its accounts receivable in 2011.
So, the answer is C) 8.5 days slower.

The Gold Coast Professional Conference Organisation Company Took an Average