Amanda's Interior Design has credit sales of $783,000,costs of goods sold of $418,000,and average accounts receivable of $107,900.How long does it take its credit customers to pay for their purchases?

Question

Quizplus · Accepted Answer

The formula to determine the average collection period is:
Average Collection Period = (Accounts Receivable / Credit Sales) x Number of Days

First, we need to calculate the ratio of accounts receivable to credit sales:
Ratio = Accounts Receivable / Credit Sales
Ratio = $107,900 / $783,000
Ratio = 0.1379

Next, we need to calculate the number of days in the period:
Number of Days = 365

Finally, we can calculate the average collection period:
Average Collection Period = (0.1379 x 365)
Average Collection Period = 50.3045 days

Therefore, it takes Amanda's Interior Design's credit customers an average of 50.30 days to pay for their purchases. The best choice is B.

Amanda's Interior Design Has Credit Sales of $783,000,costs of Goods