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Homework answers / question archive / 26) Smart and Smiley Incorporated has an average collection period of 74 days
26) Smart and Smiley Incorporated has an average collection period of 74 days. What is the accounts receivable turnover ratio for Smart and Smiley? A) 4.93 B) 2.47 C) 2.66 D) 1.68 27) Billing's Pit Corporation has an accounts receivable turnover ratio of 3.4. What is Billing's Pit Corporation's average collection period? A) 107 days B) 102 days C) 73 days D) 55 days W MacBook Pro
Answer 26: 4.93
Answer 27: 107 Days
Workings:
1. Accounts Receivable Turnover Ratio = 365/Average Collection Period
=> Accounts Receivable Turnover Ratio = 365/74 = 4.93
2. Average Collection Period = 365/Accounts Receivable Turnover Ratio
=> Average Collection Period = 365/3.4 = 107.35 Days
Explanation:
The average collection period represents the average number of days between the date a credit sale is made and the date the purchaser pays for that sale. A company's average collection period is indicative of the effectiveness of its accounts receivable management practices.
Average Collection Period Formula:
Average Collection Period = 365/Accounts Receivable Turnover Ratio
=> Accounts Receivable Turnover Ratio = 365/Average Collection Period
Using the above formulas, solutions are worked out.
