A company has trade receivables of $120,000. Its total annual sales are $1,825,000, of which $1,460,000 are on credit. What is the trade receivables collection period, based on a 365-day year?

Correct answer: A) 30 days

Explanation

The collection period uses credit sales only, because cash sales never create receivables. Receivables collection period = trade receivables / credit sales x 365 = 120,000 / 1,460,000 x 365 = 30 days. Using total sales gives 120,000 / 1,825,000 x 365 = 24 days, and 12 is the receivables turnover (1,460,000 / 120,000 = 12.2 times), not a number of days.