Question

The following balance sheet information was provided by Western Company: Assets Year 2 Year 1 Cash $ 4,000 $ 2,000 Accounts receivable 15,000 12,000 Inventory $ 35,000 $ 38,000 Assuming Year 2 net credit sales totaled $270,000, what were the company's average days to collect receivables? (Use 365 days in a year. Do not round intermediate calculations.)

Answer 1

Answer:

The company's average days to collect receivables is 18.25 days.

Explanation:

For computing the company's average days to collect receivables, first we have to calculate the account receivable turnover ratio. The formula is shown below

Account Receivable Turnover ratio = Net credit Sales ÷ Average accounts receivable

where,

Net credit sales is given

And, the average accounts receivable = (Year 1 + Year 2) ÷ 2

                                                                = ($15,000 + $12,000) ÷ 2

                                                                = $13,500

So, Account Receivable Turnover ratio = $270,000 ÷ $13,500 = 20

Now, average days to collect receivables = Number of days in a year ÷ Account Receivable Turnover ratio

= 365 ÷ 20

=  18.25 days

Hence, the company's average days to collect receivables is 18.25 days.