Answer:
61.75 days
Explanation:
The average collection period (ACP) is basically the period of time taken for a business to recover its credit sales.
ACP= average account receivable/net sales X 365
Where,
The average accounts receivable (AAR) over the period can be determined by totaling the accounts receivable at the beginning of the period and the accounts receivable at the end of the period, then dividing by 2.
(All numbers are in millions)
AAR= 26+19/2
AAR=45/2
AAR=22.5
Average Collection Period for 2021
ACP=22.5/133 X 365
ACP=0.1691729323 x 365
ACP= 61.75 days
The shorter the number of days required to recover credit sales the better.
Answer:
Average collection period is 61.75 days.
Explanation:
Average Collection Period : Average collection period shows the number of days that company is taken to convert its receivables in to cash.
Average Collection period = 365 / Accounts Receivable Turn over
Accounts Receivable Turn over = Net Credit Sales / Average Accounts Receivable
Given data
2021 2020
in Million in Million
Accounts Receivable 26 19
Net Sales 133 118
Cost of goods sold 78 73
Net Income 26 21
Accounts Receivable Turn over = 133 / [( 26+19)/2]
Accounts Receivable Turn over = 5.91 times
Average Collection period = 365 / Accounts Receivable Turn over ratio
Average Collection period for 2021 year = 365 / 5.91 = 61.75 days
This means that the company takes 61.75 days on average to convert its receivables in to cash.
