Red Company has the following information:
Net credit sales = $400,000
Net income = $100,000
Average total assets = $80,000
Average accounts receivable = $20,000
What is Red's average collection period (rounded to the nearest whole day)?

Question

Quizplus · Accepted Answer

The average collection period can be calculated using the formula:

Average Collection Period = (Accounts Receivable / Net Credit Sales) x Number of Days in Period

Plugging in the values given, we get:

Average Collection Period = (20,000 / 400,000) x 365 = 18.25

Rounding to the nearest whole day, the average collection period is 18 days. Therefore, the best choice is B.

Red Company Has the Following Information