A firm has annual credit sales of $2m,an average debtor's balance of $300,000 and works 365 days a year.The average settlement period for accounts receivable is:

Question

Quizplus · Accepted Answer

To calculate the average settlement period for accounts receivable, we need to use the formula:

Average Settlement Period = (Accounts Receivable / Annual Credit Sales) x 365

Accounts Receivable can be calculated as the average debtor's balance:

Accounts Receivable = $300,000

Annual Credit Sales = $2,000,000

Substituting the values:

Average Settlement Period = ($300,000 / $2,000,000) x 365

= 0.15 x 365

= 54.75

Therefore, the average settlement period for accounts receivable is approximately 54.7 days, which is closest to option D.

A Firm Has Annual Credit Sales of $2m,an Average Debtor's