A collection period equals ________.
A) accounts receivable divided by net sales
B) [(cash + accounts receivable) divided by net sales] × 365
C) (accounts receivable divided by net sales) × 365
D) (current assets divided by net sales) × 365

Question

Quizplus · Accepted Answer

Collection period is the time taken by a company to collect its accounts receivable from its clients. It is generally measured in terms of days. The formula to calculate the collection period is (accounts receivable divided by net sales) multiplied by 365. Therefore, option C is the correct choice. Option A is incorrect as it only calculates the ratio of accounts receivable to net sales. Option B is incorrect because it includes cash in the formula which is not needed to calculate the collection period. Option D is incorrect as it uses current assets instead of accounts receivable to calculate the collection period.

A Collection Period Equals ________