Question

The Bear Rug has sales of $811,000. The cost of goods sold is equal to 63 percent of sales. The beginning accounts receivable balance is $41,000 and the ending accounts receivable balance is $38,000. How long on average does it take the firm to collect its receivables?
(A) 17.26 days
(B) 17.78 days
(C) 18.58 days
(D) 20.44 days
(E) 29.77 days

Answer 1

Answer:

B. 17.78 days

Explanation:

Days Sales Outstanding or Age of Receivables measures the average number of days it take for a company to collect its receivables.

This is computed by dividing the Average Accounts Receivables over Daily Sales. Bear Rug's Average Accounts Receivable is $39,500 ($41,000 + $38,000/2) while its Daily Sales is 2,222 ($811,000/365).

Thus, the average days for the firm to collect its receivables are 17.78 days ($39,500/2,222).