At year-end, Simple has cash of $ 22 comma 000 , current accounts receivable of $ 80 comma 000 , merchandise inventory of $ 24 comma 000 , and prepaid expenses totaling $ 4 comma 600. Liabilities of $ 64 comma 000 must be paid next year. Assume accounts receivable had a beginning balance of $ 40 comma 000 and net credit sales for the current year totaled $ 480 comma 000. How many days did it take Simple to collect its average level of receivables? (Assume 365 days/year. Round any interim calculations to two decimal places. Round the number of days to the nearest whole number.)

Question

Preston

Business

21 April, 08:14

At year-end, Simple has cash of $ 22 comma 000 , current accounts receivable of $ 80 comma 000 , merchandise inventory of $ 24 comma 000 , and prepaid expenses totaling $ 4 comma 600. Liabilities of $ 64 comma 000 must be paid next year. Assume accounts receivable had a beginning balance of $ 40 comma 000 and net credit sales for the current year totaled $ 480 comma 000. How many days did it take Simple to collect its average level of receivables? (Assume 365 days/year. Round any interim calculations to two decimal places. Round the number of days to the nearest whole number.)

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Answers (1)

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Leandro Chase · Answer 1

45.62 days

Explanation:

For computing the average number of days receivables, first, we have to calculate the account receivable ratio. The formula is shown below:

Account receivable ratio = Net credit sales : Average accounts receivable

where,

Average account receivable = (Beginning account receivable balance + ending account receivable balance) : 2

Now put these values to the above formula

So, the answer would be equal to

= $480,000 : ($40,000 + $80,000 : 2)

= $480,000 : $60,000

= 8 times

Now, the average level of receivables equals to

= Total number of days in a year : Account receivable ratio

= 365 days : 8

= 45.62 days