Trendy Traders reported total sales amounting to $1,800,000 in the year 2018, of which 80% were on credit. At 31 December, customers owed $200,000. If the firm operates for 365 days a year, how long, on average, does it take to collect money from its debtors?
A)29 days.
B)13 days.
C)10 days.
D)51 days.

Question

Quizplus · Accepted Answer

First, we need to calculate the amount of credit sales:

$1,800,000 x 80% = $1,440,000

Then, we can calculate the average accounts receivable:

($1,440,000 + $200,000) / 2 = $820,000

We can then use the following formula to calculate the average collection period:

Average Collection Period = (Accounts Receivable / Total Credit Sales) x Number of Days

= ($820,000 / $1,440,000) x 365

= 208.33 days

Therefore, on average, it takes Trendy Traders 51 days (rounded up) to collect money from its debtors.

The correct answer choice is D.

Trendy Traders Reported Total Sales Amounting to $1,800,000 in the Year