calculate the average collection period using the following information:credit sales= 200 000cash sales= 150 000debtors= 500 000?

Answer 1

A: Calculating the average collection period is a critical financial metric that allows companies to gauge how long it takes to receive payments from their customers on average. This information is essential for businesses to manage their cash flow effectively and make informed decisions about credit policies and debt collection strategies. By staying on top of this metric, companies can maintain healthy financial stability and keep their operations running smoothly. This measure helps organizations to ensure adequate cash flow and make informed decisions about their financial health. This metric provides valuable insights into a company's financial health, allowing businesses to better manage their cash flow and improve their overall financial performance. It enables the company to keep track of its cash flow and make informed decisions about managing debtors and creditors. To calculate the average collection period, you would divide the total accounts receivable by the average daily sales.

Using the information provided, we can calculate the credit sales by subtracting the cash sales from the total sales:

Credit sales = Total sales - Cash sales

Credit sales = $200,000 - $150,000

Credit sales = $50,000

Next, we can calculate the average daily sales by dividing the total sales by the number of days in the accounting period (for example, 365 days in a year, or 30 days in a month):

Average daily sales = Total sales / Number of days

Assuming a 30-day month, Average daily sales = $350,000 / 30

Average daily sales = $11,666.67

Finally, we can calculate the average collection period by dividing the total accounts receivable by the average daily sales:

Average collection period = (Accounts receivable / Average daily sales) x Number of days

Average collection period = ($500,000 / $11,666.67) x 30

Average collection period = 128.57 days

Therefore, the average collection period for this company is approximately 128.57 days.