CA Intermediate · Financial Management and Strategic Management · Management of Receivables
Sharma Traders sells on credit terms of net 45 days. Annual credit sales are Rs 36,00,000 (360-day year, sales spread evenly). Assuming no bad debts and no discounts, what is the average level of receivables?
Average receivables are Rs 4,50,000. Daily credit sales are Rs 36,00,000 divided by 360, which is Rs 10,000, and multiplying by the 45-day collection period gives Rs 4,50,000 of money tied up in debtors on average.
- ARs 4,50,000Correct
- BRs 3,60,000
- CRs 5,40,000
- DRs 4,05,000
Explanation
Daily credit sales = 36,00,000/360 = Rs 10,000. Average receivables = 10,000 x 45 = Rs 4,50,000. Rs 3,60,000 uses 36 days, a wrong base, and Rs 5,40,000 uses 54 days.
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