At year-end, Spring has cash of $ 11,000, current accounts receivable of $ 20,000, merchandise inventory of $ 35,200, and prepaid expenses totaling $ 4,200. Liabilities of $ 40,000 must be paid next year. Assume accounts receivable had a beginning balance of $ 80,000 and net credit sales for the current year totaled $ 800,000. How many days did it take Spring to collect its average level of receivables?

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DeniceSandidge DeniceSandidge · Answer 1 · 2019-11-22T09:26:50+01:00

Answer:

Days to collect receivables = 22.812

Explanation:

given data

cash = $ 11,000

current accounts receivable = $20,000

merchandise inventory = $35,200

prepaid expenses totaling = $4,200

Liabilities = $40,000

accounts receivable beginning= $ 80,000

net credit sales= $ 800,000

to find out

How many days did it take Spring to collect its average level of receivables

solution

we first get here Average Receivables that is

Average Receivables = [tex]\frac{current \ Accounts \ receivable + Beginning \ Accounts \ receivable}{2}[/tex]

Average Receivables = [tex]\frac{ 20000+80000}{2}[/tex]

Average Receivables = 50000

and

now turnover will be here

turnover = [tex]\frac{Net \ credit \ sales}{Average \ Receivables}[/tex]

turnover = [tex]\frac{800,000}{50000}[/tex]

turnover = 16

so Days to collect receivables is

Days to collect receivables = [tex]\frac{365}{16}[/tex]

Days to collect receivables = 22.812

we consider here 365 days in a year