The carrying value of a firm's account receivable is $1,000,000 and the average collection period is 55 days.The firm's credit sales per day are:
A)$33,333.33
B)$18,181.82
C)$1,000,000.00
D)$1,333,333.33
E)None of the above.

Question

Quizplus · Accepted Answer

To calculate the credit sales per day we use the formula:

Credit Sales/Number of Days = Average Accounts Receivable

We can rearrange this formula to solve for credit sales per day:

Credit Sales/Number of Days = Accounts Receivable Turnover Ratio = 365/Average Collection Period

So, Credit Sales/365 = Accounts Receivable Turnover Ratio / Average Collection Period

Credit Sales = Accounts Receivable Turnover Ratio * (365 / Average Collection Period)

Plugging in the values given in the problem:

Credit Sales = 1,000,000 * (365/55) = $6,578,947.37

Now we can divide this by the total number of days to get the credit sales per day:

Credit Sales per day = $6,578,947.37 / 365 = $18,181.82

Therefore, the answer is B) $18,181.82.

The Carrying Value of a Firm's Account Receivable Is $1,000,000