To calculate the average collection period, we need to divide the accounts receivable by the average daily sales.
Average daily sales = Sales / Number of days
To find the number of days, we first need to calculate the cost of goods sold as a percentage of sales.
Cost of goods sold percentage = Cost of goods sold / Sales
Cost of goods sold percentage = 124,000 / 430,000 = 0.2884
Next, we need to calculate the average inventory:
Average inventory = (Beginning inventory + Ending inventory) / 2
= (16,000 + 16,000) / 2
= 16,000
Now we can find the number of days:
Number of days = 365 * (Average inventory / Cost of goods sold)
= 365 * (16,000 / 0.2884)
≈ 20,180
Finally, we can calculate the average collection period:
Average collection period = Accounts receivable / Average daily sales
= 42,000 / (430,000 / 20,180)
≈ 1.99 days
Therefore, on average, it takes Guo Marketing approximately 1.99 days to collect payment from its customers.
Guo marketing has sales of $430,000, cost of goods sold of $124,000, inventory of $16,000, and accounts receivable of $42,000. How many days, on average, does it take the firm to collect payment from its customers?
1 answer