Question

The Newkirk Corporation has annual credit sales of $29 million.
The average collection period is 34 days.
(Enter your answer as directed, but do not
round intermediate calculations.) |

Required: |

What is the average investment in accounts receivable as shown
on the balance sheet? |

Average receivables | $ |

Answer #1

Average collection period is the no. of days between between the sales are made and the amount is collected from debtors.

**Average collection period = 365 / Account receivables
turnover ratio **(1)

(assuming 365 days in a year)

**Account receivables turnover ratio = Net credit sales /
Average account receivables **(2)

Here,

Annual credit sales = $29 million

Average collection period = 34 days

Putting the value of average collection period in equation 1

**Account receivables turnover ratio** = 365 /
34

Now putting value of **Account receivables turnover
ratio** in equation 2.

Solving this we get,

**Average accounts receivables = $
27,01,369.86**

**Hope it helps!**

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