Question

Morning Star has credit sales of $1,032,800, costs of goods sold of $662,350, average accounts receivable of $86,300, and average accounts payable of $92,600. On average, how long does it take Morning Star's credit customers to pay for their purchases?

Answer 1

Answer: 33 days

Explanation:

Given

Credit sales = $1,032,800

Average accounts receivable of $86,300

Calculation of number of days taken for customers to pay for credit purchases

Accounts receivable turnover ratio = Net Credit sales/ Average accounts receivable

(Net credit sales means only credit sales and deduct any sales returns)

=1032800/92600

=11.15 times in a year

Calculation of number of days

=365 days/11.15 times

=32.74 or 33 days approximately.