Calculate the Average Collection Period of the company from the following information.
Credit revenue from operations ₹5,60,000; Debtors ₹70,000; B/R ₹10,000.
Answer & explanation
Correct answer: option 1
The correct answer is option 1- 53 Days.
In order to calculate average Trade Receivables, the figures of debtors and bills receivables in the beginning of the year are not available. So when only year-end figures are available use the same as it is.
Trade Receivable Turnover ratio = Net Credit Revenue from Operations/Average Trade Receivable
= 5,60,000/80,000
= 7 times.
Average Collection Period = Number of days or Months/ Trade receivables turnover ratio
= 365/7
= 52.14 days or 53 days.