If a firm starts the year with receivables of $80,000 and produces sales for the year of $300,000,what is its average collection period?
A) 3.75 days.
B) 97.3 days.
C) 52 days.
D) 77.9 days

Question

Quizplus · Accepted Answer

The average collection period is calculated by dividing the average receivables by the daily sales. Assuming the ending receivables are the same as the beginning, the average receivables are $80,000. Daily sales are $300,000/365 = $821.92. Thus, the average collection period is $80,000/$821.92 ≈ 97.3 days.

If a Firm Starts the Year with Receivables of $80,000