Answer:
The average collection period is 17.78 days.
Explanation:
In this question, we have to first compute the average receivable turnover ratio.
The formula of the average receivable turnover ratio is shown below:
= Net credit sales ÷ Average accounts receivable
where,
Net credit sales are $811,000
And, the average accounts receivable equals to
= Beginning account receivable + ending accounts receivable ÷ 2
= $41,000 + $38,000 ÷ 2
= $39,500
So, the average receivable turnover ratio equals to
= $811,000 ÷ $39,500
= 20.53
Now, we calculate the average collection period, the formula is shown below
= Total Number of days in a year ÷ average receivable turnover ratio
= 365 ÷ 20.53
= 17.78 days.
Hence, the average collection period is 17.78 days.
