Question

The total annual sales for Herman's Hardware Store was $1,246,135 and the total accounts receivable was $41,728. What was the average collection period to the nearestwhole day?12 days14 days18 days24 daysNone of these choices are correct.

Answer 1

The average collection Period formula is

$\text{Average collection period=}\frac{Account\text{ receivable}}{\frac{Annual\text{ sales}}{365}}$$\begin{gathered} \text{Annual sales=\ 1,246,135} \\ \text{Account receivable =\ 41,728} \end{gathered}$

Substitute the values above in the average collection period

$\begin{gathered} \text{Average collection period =}\frac{41728}{\frac{1246135}{365}} \\ =\frac{41728}{3414.06} \\ =12.222 \\ \approx12days \end{gathered}$

Hence the average collection period to the nearest whole day is 12 days