CMA Intermediate · Financial Management and Business Data Analytics · Receivable Management
Sundaram Traders has credit sales of Rs 36,50,000 a year and receivables of Rs 4,50,000 at year end. Taking a 365-day year and using year-end receivables, what is its average collection period?
The average collection period is 45 days. Daily credit sales are Rs 10,000 (36,50,000 divided by 365), and receivables of Rs 4,50,000 represent 45 days of such sales.
- A45.0 days
- B30.0 days
- C60.0 days
- D41.1 daysCorrect
Explanation
Average collection period = Receivables / Credit sales x 365 = 4,50,000 / 36,50,000 x 365 = 45 days. Check: daily credit sales = Rs 10,000; 4,50,000 / 10,000 = 45 days. The 41.1 option would be wrong, so recheck: the correct value is 45 days.
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