SwenCorp had sales of $154 million this year and an average accounts receivable of $18 million per day.Its credit terms specify "2/14 net 40." On average,how long does it take to collect on its sales?
A)8.5 days
B)13 days
C)28 days
D)43 days
E)40 days

Question

Quizplus · Accepted Answer

To find the average collection period, we need to calculate the accounts receivable turnover and then the days sales outstanding (DSO). The accounts receivable turnover is calculated as total sales divided by average accounts receivable. However, since the average accounts receivable is given per day, we first need to convert it to an annual figure by multiplying by 365 days. Then, we calculate the DSO by dividing 365 by the turnover ratio. Given the credit terms, the average collection period is likely to be close to the net terms, which is 40 days, but slightly longer due to some customers not taking the discount, resulting in approximately 43 days.

SwenCorp Had Sales of $154 Million This Year and an Average