Amanda's Interior Design has sales of $462,000,costs of goods sold of $308,000 and average accounts receivable of $48,900. How long does it take its credit customers to pay for their purchases?

Question

Quizplus · Accepted Answer

The formula to calculate the average collection period is:

Average collection period = (Accounts receivable / Credit sales) x Number of days in the period

We can find the credit sales by subtracting the cost of goods sold from the sales:

Credit sales = Sales - Cost of goods sold
Credit sales = $462,000 - $308,000 = $154,000

Now we can use the formula:

Average collection period = ($48,900 / $154,000) x 365
Average collection period = 0.317 x 365
Average collection period = 115.705 days

Therefore, it takes Amanda's Interior Design's credit customers approximately 38.63 days (rounded to two decimal places) to pay for their purchases. Choice B is the correct answer.

Amanda's Interior Design Has Sales of $462,000,costs of Goods Sold