Question

The financial statements of the larson company report net sales of $1,000,000 and accounts receivable of $80,000 and $60,000 at the beginning of the year and end of year, respectively. what is the average collection period for accounts receivable in days?

Answer 1

To calculate the average collection period: the average accounts receivable balance divided by average credit sales per day. With $1,000,000 per year, that is $2739.73 per day. The average accounts receivable is ($80,000 + $60,000) / 2 = $70,000 $70,000 / $2,739.73 = 25.6 days