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Accounts receivable at the end of year 1 was $50,000 and its accounts receivable at the...

Accounts receivable at the end of year 1 was $50,000 and its accounts receivable at the end of year 2 was $100,000. Inventory at the end of year 2 was $70,000 and its inventory at the end of year 1 was $120,000. The company’s sales on account for year 2 is closest to what amount if the average collection period is 20 days.

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Answer #1

Answer: Net Sales on Account = $1,368,750

Explanation:

Average Collection period = 365 days ÷ Average Receivables Turnover ratio

20 = 365 ÷ Average Receivables Turnover ratio

Average Receivables Turnover ratio = 365 ÷ 20

Average Receivables Turnover ratio = 18.25

Average Receivables Turnover ratio = Net Sales ÷ Average Receivables

Average Receivables Turnover ratio = 18.25

AverageReceivables= ($50,000 +$100,000) ÷2

= $75,000

Net Credit Sales = $75,000 × 18.25

= 1,368,750

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