Question

View Policies Current Attempt in Progress Crane Shop had a balance in the Accounts Receivable account of $759000 at the beginning of the year and a balance of $1003000 at the end of the year. Net credit sales during the year amounted to $6431300. The average collection period of the receivables in terms of days was O 42.9 days O 50.0 days. 43.8 days. O 3.7 days. Attempts: 0 of 1 used Submit Answer

Answer 1

Average Collection peroid of receivables in terms of days = 365 / Accounts receivable turnover ratio

and Average Turnover Ratio = Net Credit Sales/ Average balance of Accounts receivable

Net Credit sales given = $6,431,000

And Average Balance of Accounts Receivable = (Opening Balance + Closing Balance) / 2

Opening Balance of accounts Receivable =$759,000

Closing balance of Accounts Receivable= $1,003,000

Therefore Average balance of accounts receivable= (759000+1003000)/2

= 1,762,000/2

= $881,000

Now to calculate Average receivable turnover rratio= Credit sales/ Avg Balance of Accounts receivable

$6,431,000/ $ 881,000

= 7.30

Now to calculate average Collection peroid= 365/ Average receivable turnover ratio

= 365/ 7.30

= 50.0 days

HENCE THE CORRECT ANSWER IS (b) 50.0 DAYS