CA Intermediate · Financial Management and Strategic Management · Management of Receivables
Sharma Traders sells on credit with annual credit sales of ₹36,00,000. Customers pay on average 45 days after sale. Assume a 360-day year. What is the average level of receivables?
Average receivables equal credit sales multiplied by collection period over 360 days: 36,00,000 × 45/360 = ₹4,50,000. This follows because receivables turn over eight times a year, so the average balance is one-eighth of annual credit sales.
- A₹4,50,000Correct
- B₹3,60,000
- C₹6,00,000
- D₹4,05,000
Explanation
Receivables turnover = 360/45 = 8 times. Average receivables = 36,00,000/8 = ₹4,50,000. Using 30 days gives ₹3,00,000 and is not appropriate here; using 360 days with 36 days would give ₹3,60,000, a wrong period.
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