A company with net sales of $800,000, a beginning balance of net receivables of $70,000, and an ending balance of net receivables of $90,000 has a collection period (rounded)of:

Question

Quizplus · Accepted Answer

The formula for calculating the collection period is:

Collection period = (Average accounts receivable ÷ Net credit sales) x 365

We need to find the average accounts receivable. To do this, we can use the following formula:

Average accounts receivable = (Beginning balance of net receivables + Ending balance of net receivables) ÷ 2

Average accounts receivable = ($70,000 + $90,000) ÷ 2 = $80,000

Now we can substitute the values in the collection period formula:

Collection period = ($80,000 ÷ $800,000) x 365 = 36.25 days

Rounding the answer, we get the closest choice, which is C (36 days).

A Company with Net Sales of $800,000, a Beginning Balance