A general rule to use in assessing the average collection period is that it
A) should not greatly exceed the discount period.
B) should not exceed 30 days.
C) can be any length as long as the customer continues to buy merchandise.
D) should not greatly exceed the credit term period.

Question

Quizplus · Accepted Answer

The average collection period is the length of time it takes a business to receive payment from its customers for goods and services sold on credit. It is calculated by dividing accounts receivable by average daily credit sales. The credit term period is the time allowed by the seller for the buyer to make payment. The average collection period should not greatly exceed the credit term period, as it may indicate potential problems with collections and cash flow. Therefore, option D is the best choice.

A General Rule to Use in Assessing the Average Collection