Chapter 3: Q8BP (page 221)

Darla’s Cosmetics has annual credit sales of $1,440,000 and an average collection period of 45 days in 2008. Assume a 360-day year. What is the company’s average accounts receivable balance? Accounts receivable are equal to the average daily credit sales times the average collection period

Short Answer

Expert verified

The average accounts receivables balance is $180,000.

Step by step solution

Information provided in the question

Credit sales = $1,440,000

Average collection period =45 days

Number of days in a year = 360

Calculation of average accounts receivables

The average accounts receivables will be $180,000.

$\begin{array}{rcl} A v e r a g e d a i l y c r e d i t s a l e s & = & \frac{A n n u a l c r e d i t s a l e s}{N u m b e r o f d a y s i n a y e a r} \\ = & \frac{$ 1, 440, 000}{360} \\ = & $ 4, 000 \end{array}$

$\begin{array}{rcl} A v e r a g e a c c o u n t r e c e i v a b l e s & = & A v e r a g e d a i l y c r e d i t s a l e s \times A v e r a g e c o l l e c t i o n p e r i o d \\ = & $ 4, 000 \times 45 d a y s \\ = & $ 180, 000 \end{array}$

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January	\(28,000
February	\)19,000
March	\(12,000
April	\)14,000
May	\(8,000
June	\)6,000
July	\(22,000
August	\)26,000
September	\(29,000
October	\)34,000
November	\(42,000
December	\)24,000
Total annual sales	\(264,000

Darla’s Cosmetics has annual credit sales of $1,440,000 and an average collection period of 45 days in 2008. Assume a 360-day year. What is the company’s average accounts receivable balance? Accounts receivable are equal to the average daily credit sales times the average collection period

Short Answer

Step by step solution

Information provided in the question

Calculation of average accounts receivables

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