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Metlock, Inc. had a balance in the Accounts Receivable account of $819000 at the beginning of the year and a balance of $914000 at the end of the year. Net credit sales during the year amounted to $9098250. The average collection period of the receivables in terms of days was

a. 5 days.
b. 34.8 days.
c. 32.9 days.
d. 34 days.

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Answer:

The average collection period of the receivables in terms of days was b. 34.8 days.

Explanation:

The average collection period of the receivables in terms of days =  365/Accounts receivable turnover ratio

The accounts receivable turnover is an efficiency ratio that measures how many times a company can collect its receivables or money owed by clients during the year.

Accounts receivable turnover is calculated by following formula:

Accounts Receivable Turnover ratio = Net Credit Sales /Average Accounts Receivable

In there:

Average Accounts Receivable = (The beginning accounts receivable of the year balance + The ending accounts receivable of the year balance)/2  = ($819,000 + $914,000)/2 = $866,500

Accounts Receivable Turnover = $9,098,250/$866,500 = 10.5 times

The average collection period of the receivables = 365/Accounts receivable turnover ratio  = 365/10.5 = 34.8 days