Question

The financial statements of the Harrison Company report net sales of $200,000 and accounts receivable of $10,000 and $5,000 at the beginning of the year and end of year, respectively. What is the average collection period for accounts receivable in days?

Answer 1

Answer:

Average collection period = 13.68 days (approx)

Explanation:

Given:

Net sales = $200,000

Opening account receivable = $10,000

Closing account receivable = $5,000

Computation of Receivables turnover:

Receivables turnover = Net credit sales / Average account receivable

Receivables turnover = $200,000 / [($10,000 + 5,000) / 2]

Receivables turnover = $200,000 / $7,500

Receivables turnover = $26.6666667

Computation of average collection period:

Average collection period = 365 / Receivables turnover

Average collection period = 365 / $26.6666667

Average collection period = 13.68 days (approx)