Question

Star Corporation sells its goods on terms of 2/10, n/30. It has a receivables turnover ratio of 7.50. What is its average collection period (also known as the days in receivable ratio)?

Answer 1

The average collection period can be calculated using the receivables turnover ratio, which in this case is 7.50. By dividing 365 days by the receivables turnover ratio, we find that the average collection period is approximately 48.67 days.

Step-by-step explanation:

The average collection period (also known as the days in receivable ratio) can be calculated using the receivables turnover ratio.

The receivables turnover ratio is obtained by dividing net credit sales by average accounts receivable.

In this case, since we have the receivables turnover ratio of 7.50, we can find the average collection period by dividing 365 days by the receivables turnover ratio. So, 365 / 7.50 = 48.67 days (rounded to 2 decimal places).