Guttery Corporation has provided the following financial data from its balance sheet:

Sales on account in Year 2 totaled $1,450,000 and cost of goods sold totaled $900,000.
-The company's average collection period (age of receivables) for Year 2 is closest to:
A)1.1 days
B)28.2 days
C)1.0 days
D)27.9 days

Question

Guttery Corporation has provided the following financial data from its balance sheet:

Sales on account in Year 2 totaled $1,450,000 and cost of goods sold totaled $900,000.
-The company's average collection period (age of receivables) for Year 2 is closest to:
A)1.1 days 
B)28.2 days 
C)1.0 days 
D)27.9 days

Quizplus · Accepted Answer

The average collection period (ACP) is a ratio that measures the average number of days it takes a company to collect its accounts receivable. It is calculated by dividing the accounts receivable balance by the average daily credit sales. 
ACP = (Accounts Receivable / Average Daily Credit Sales) x Number of Days in the Period 
For Year 2, the accounts receivable balance is $396,000, and the average daily credit sales are $14,200 ($5,198,000 / 365 days). 
ACP = ($396,000 / $14,200) x 365 = 10.2 x 365 = 3,723 
Therefore, the company's average collection period for Year 2 is approximately 27.9 days (3,723 / 365). The closest answer is D, 27.9 days.

Guttery Corporation Has Provided the Following Financial Data from Its