Question

At​ year-end,

SnowSnow

has cash of

$11,000​,

current accounts receivable of

$20,000​,

merchandise inventory of

$35,200​,

and prepaid expenses totaling

$5,700.

Liabilities of

$40,000

must be paid next year. Assume accounts receivable had a beginning balance of

$80,000

and net credit sales for the current year totaled

$800,000.

How many days did it take

SnowSnow

to collect its average level of​ receivables? ​(Assume 365​ days/year. Round any interim calculations to two decimal places. Round the number of days to the nearest whole​ number.)

Answer 1

Answer:

Calculation of average collection period:

Average collection period = Average accounts receivable / Average daily credit sales

= ($50,000 / $2,191.78)

   = 22.81 days

Accordingly, SnowSnow take 22.81 days on an average to collect its receivables.

   

Note-1: Calculation of average accounts receivable:

Average accounts receivable = (Beginning accounts receivable + Ending accounts receivable) / 2

= ($80,000 + $20,000) / 2

= $50,000

Note-2: Calculation of average daily credit sales:

Average daily credit sales = Credit sales / No. of days in a year

= $800,000 / 365 days

= $2,191.78