Question

The following financial information is for Annapolis Corporation are for the fiscal years ending 2019 & 2018 (all balances are normal):

Item/Account	2019	2018
Accounts Receivable	$40,000	$38,000
Inventory	42,000	38,000
Net Sales (all credit)	420,000	350,000
Cost of Goods Sold	154,000	152,000
Net Income	27,200	24,800

Use this information to determine the accounts receivable average collection period for FY 2019. (Use 365 day year. Round your answers to one decimal place.)

Answer 1

The accounts receivable average collection period is the amount of time it takes for a business to receive payments owed by its clients in terms of accounts receivable.

The average collection period is calculated by dividing the average balance of accounts receivable by total net credit sales for the period and multiplying the quotient by the number of days in the period.

Formula equation will be : (Average balance of accounts receivable/Total net credit sales for the period)*Number of days in the period)

A.) Firstly we need to calculate Average balance of accounts receivable :

> Average balance of accounts receivable= (Opening balance of accounts receivable+Closing balace of accounts receivable)/2

=($38000+$40000)/2=$39000

B.) Now we require total net credit sale for the period :

Given in question : $420000

Now as we have all the information required for calculating average collection period :

=$39000(Average balance of accounts receivable calculated in A)/$420000( Total credit sales for the period)*365 (Number of days in period)

=$39000/$420000*365=33.89

So, the average collection period for accounts receivable will be 33.89(Answer)