Asked by Wendy Thurmond on May 05, 2024
Verified
Granger Corporation had $191,000 in sales on account last year. The beginning accounts receivable balance was $22,000 and the ending accounts receivable balance was $32,000. The corporation's average collection period was closest to: (Round your intermediate calculations to 2 decimal places.)
A) 42.0 days
B) 51.6 days
C) 61.2 days
D) 7.1 days
Average Collection Period
The average collection period is the average amount of time it takes for a business to receive payments owed by its customers for sales made on credit.
Accounts Receivable
Money owed to a business by its customers for goods or services delivered but not yet paid for.
Sales on Account
Transactions where goods or services are delivered with payment to be made at a later date, typically recorded as accounts receivable.
- Understand the calculation and implications of accounts receivable and accounts payable metrics.
Verified Answer
AV
Ashna VermaMay 06, 2024
Final Answer :
B
Explanation :
Average collection period = (Accounts receivable / Average daily credit sales)
Average daily credit sales = Annual credit sales / 365 days
Annual credit sales = $191,000
Average daily credit sales = 191,000 / 365 = $523.29 (approx)
Accounts receivable turnover = Annual credit sales / Average accounts receivable
Average accounts receivable = (Beginning accounts receivable + Ending accounts receivable) / 2
= (22,000 + 32,000) / 2 = $27,000
Accounts receivable turnover = 191,000 / 27,000 = 7.07 (approx)
Average collection period = 365 / Accounts receivable turnover
= 365 / 7.07 = 51.6 days (approx)
Therefore, the closest average collection period is 51.6 days, which corresponds to answer choice B.
Average daily credit sales = Annual credit sales / 365 days
Annual credit sales = $191,000
Average daily credit sales = 191,000 / 365 = $523.29 (approx)
Accounts receivable turnover = Annual credit sales / Average accounts receivable
Average accounts receivable = (Beginning accounts receivable + Ending accounts receivable) / 2
= (22,000 + 32,000) / 2 = $27,000
Accounts receivable turnover = 191,000 / 27,000 = 7.07 (approx)
Average collection period = 365 / Accounts receivable turnover
= 365 / 7.07 = 51.6 days (approx)
Therefore, the closest average collection period is 51.6 days, which corresponds to answer choice B.
Learning Objectives
- Understand the calculation and implications of accounts receivable and accounts payable metrics.