Knight Roundtable Co. has annual credit sales of $1,080,000 and an average collection period of 32 days in 2008. Assume a 360-day year. What is the company’s average accounts receivable balance? Accounts receivable are equal to the average daily credit sales times the average collection period.
Solution:
Knight Roundtable Co.
Credit sales per day= (Annual credit sales)/360
=$x, xxx, xxx/xxx
=$x,xxx
Average accounts receivable balance= credit sales ×avrage collection period
=$x,xxx × xx
=$xx, xxx
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