568FinanceMedium
Standard Company had net sales of Rs. 750,000 over the past year. During that time, average receivables were Rs. 150,000. Assuming a 365-day year, what was the average collection period?
A36 days
B5 days
C48 days
D73 days
Correct answer
D. 73 days
Explanation
The average collection period is calculated by dividing the average balance of accounts receivable by total net credit sales for the period and multiplying the quotient by the number of days in the period. use the following formula: (Average Receivables/Net Sales)*365 150,000/750,000*365 = 73 days _________________________________________________ Net sales=750,000 A/C receivables= 150,000 days in a year =365 Collection period= (A/C Receivables/ net sales)*days in a year = (150,000/750,000)*365= 73 days