Oral Roberts Dental Supplies has annual sales of $5,625,000. 80% are on credit. The firm has $475,000 in accounts receivable. Compute the value of the average collection period.

The answer is 38 days

Explanation:

The average collection period is the number of days it takes a company to convert its credit sales to cash

Average collection period = (account receivables/average credit sales) x 360 days

Credit sales = 80% of $5,625,000

=0.8 x $5,625,000

=$4,500,000.

Average collection period is therefore,

($475,000/$4,500,000) x 360 days

=0.10555556 x 360days

=38 days