Question

Novak Corp. had accounts receivable of $140,000 on January 1, 2022. The only transactions that affected accounts receivable during 2022 were net credit sales of $3,795,000, cash collections of $3,725,000, and accounts written off of $20,000.
Required:
a. Compute the ending balance of accounts receivable.
b. Compute the accounts receivable turnover for 2016.
c. Compute the average collection period in days.

Answer 1

Answer:

a. $210,000

b. 21.69 times

c. 16.83 average days to collect receivables

Explanation:

a. Ending balance of accounts receivable

= Beginning account receivable + Net credit sales - Cash collections

= $140,000 + $3,795,000 - $3,725,000

= $210,000

b. Account receivable turnover

= Net credit sales ÷ [(Beginning inventory + Ending inventory)/2]

= $3,795,000÷ [($140,000 + $210,000)/2]

= $3,795,000 ÷ $175,000

= 21.69 times

c. Average collection period in days

= Average account receivable ÷ [ Annual sales ÷ 365]

= $175,000 ÷ [$3,795,000 ÷ 365]

= $175,000 ÷ $10,397

= 16.83 average days to collect receivables