CA Intermediate · Financial Management and Strategic Management · Management of Receivables
Sharma Traders has annual credit sales of ₹36,00,000 and an average collection period of 50 days. Assume a 360-day year. What is the average receivables balance?
Average receivables equal daily credit sales multiplied by the average collection period. Daily sales are ₹36,00,000 divided by 360, which is ₹10,000. Multiplying by 50 days gives ₹5,00,000 as the average receivables balance.
- A₹5,00,000Correct
- B₹7,20,000
- C₹3,60,000
- D₹6,00,000
Explanation
Daily credit sales = 36,00,000/360 = ₹10,000. Average receivables = 10,000 × 50 = ₹5,00,000. Using 30 days would give ₹3,00,000 and so on; ₹7,20,000 arises from using 72 days, which is wrong.
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