Question

Net credit sales for Turner Company are $200,000 for the year and the average accounts receivable balance is $20,000. What is the company's average collection period?

A) 5 days
B) 548 days
C) 54.8 days
D) 36.5 days

Answer 1

The average collection period for Turner Company, with net credit sales of $200,000 and an average accounts receivable balance of $20,000, is calculated to be 36.5 days.

Step-by-step explanation:

The company's average collection period can be determined using the formula for the average collection period, which is:

Average Collection Period = (Average Accounts Receivable / Net Credit Sales) × Days in the Period

In the case of Turner Company, the average accounts receivable balance is $20,000 and the net credit sales are $200,000. Assuming 'Days in the Period' refers to a year (365 days), the calculation would be:

Average Collection Period = ($20,000 / $200,000) × 365 = 0.1 × 365 = 36.5 days

Therefore, the correct answer is D) 36.5 days. This means on average, it takes the Turner Company 36.5 days to collect its receivables.