Question

From the following information, calculate average collection period: Total sales rs.1,40,000 , cash sales ( included in total sales ) rs.30,000 , sales return rs.15,000 , total debtors at the end of the year rs.12,000 , bills receivable rs. 6,200 , bad debts provision rs. 3,000 , creditor rs. 12,000 ​

Answer 1

Explanation:-

Trade receivables Turnover Ratio = Net credit sales/ Average Trade Receivables.

Net Credit Sales =Total Sales- Cash Sales- Sales Return =140000-30000-15000=95000.

Average Trade receivables =Debtors+Bill's receivables =12000+6200=18200.

Trade receivables Turnover Ratio=95000/18200=5.21 times

Average Collection Period =365/Trade receivables Turnover Ratio

=365/5.21=70.057.( approximately 70 days)