A firm has accounts receivable of $400,000 and net sales of $2,000,000.Its collection period is five days.

Question

Quizplus · Accepted Answer

To calculate the collection period, we use the formula:

Collection period = (Accounts receivable / Net sales) x Number of days

In this case, the calculation is:

Collection period = ($400,000 / $2,000,000) x 365
Collection period = 7.25 days

Therefore, the statement is false - the collection period is not five days.

A Firm Has Accounts Receivable of $400,000 and Net Sales