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Dome Metals has credit sales of $198,000 yearly with credit terms of net 120 days, which is also the average collection period
Dome Metals has credit sales of $198,000 yearly with credit terms of net 120 days, which is also the average collection period. Dome does not offer a discount for early payment, so its customers take the full 120 days to pay.
a. What is the average receivables balance? (Use a 360-day year.)
Average receivables balance
r
b. What is the receivables turnover? (Use a 360-day year.)
Receivables turnover
r
times
Expert Solution
a) Computation of Average recievables balance:
Average recievables balance = Net credit sales * (Average collection period / 360 days)
Here,
Net credit sales = $198,000
Avergae collection period = 120 days
Now,
Average recievables balance = $198,000 * (120/360) days
Average recievables balance = $66,000
b) Recievables turnover = Net credit sales / Average accounts recievables
Here,
Net credit sales = $198,000
Average accounts recievables = $66,000
Now,
Recievables turnover = $198,000 / $66,000
Recievables turnover = 3 times
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