Question

Senath Company's annual report reveals net credit sales of $240,000 and average accounts receivable of $20,000. The report also shows an average inventory balance of $10,000 and cost of goods sold of $200,000. Based on this information (treat any partial day as a whole day)
a. the average number of days to collect receivables is 12.

b. the average number of days to collect receivables is 31.

c. the accounts receivable turnover is 20.

d. the accounts receivable turnover is 19.

Answer 1

Answer:

b. the average number of days to collect receivables is 31.

Explanation:

The calculation of average number of days is shown below:-

Accounts receivable turnover = Net credit sales ÷ Average accounts receivable

$240,000 ÷ $20,000

= 12    

Average number of days to collect receivable = Number of days in a year ÷ Accounts receivable turnover

= 365 ÷ 12

= 31 days

Therefore for computing the average number of days to collect receivable we simply divide accounts receivable turnover by number of days in a year.