For a company with annual revenues of 365,000, current receivables of 6,600, and net income of 32,000, what is the average collection period in days?

For a company with annual revenues of 365,000, current receivables of 6,600, and net income of 32,000, what is the average collection period in days?

• A. 6.6 days
• B. 65 days
• C. 6.2 days
• D. 36.2 days

Answer: (A)

The average collection period tells you, on average, how long it takes to collect receivables, measured in days. It’s found by dividing average accounts receivable by the average daily credit sales. Here we approximate average accounts receivable with current receivables (6,600) and average daily sales with annual revenues divided by 365 (365,000 / 365 = 1,000 per day). So the period is 6,600 / 1,000 = 6.6 days. The net income figure isn’t needed for this calculation. Therefore, the average collection period is 6.6 days.

The average collection period tells you, on average, how long it takes to collect receivables, measured in days. It’s found by dividing average accounts receivable by the average daily credit sales. Here we approximate average accounts receivable with current receivables (6,600) and average daily sales with annual revenues divided by 365 (365,000 / 365 = 1,000 per day). So the period is 6,600 / 1,000 = 6.6 days. The net income figure isn’t needed for this calculation. Therefore, the average collection period is 6.6 days.