Dome Metals has credit sales of $270,000 yearly with credit terms of net 90 days
ID: 2654036 • Letter: D
Question
Dome Metals has credit sales of $270,000 yearly with credit terms of net 90 days, which is also the average collection period. Dome does not offer a discount for early payment, so its customers take the full 90 days to pay.
What is the average receivables balance? (Use a 360-day year.)
Dome Metals has credit sales of $270,000 yearly with credit terms of net 90 days, which is also the average collection period. Dome does not offer a discount for early payment, so its customers take the full 90 days to pay.
Explanation / Answer
a. Average Receivables Balance
Sales = 270,000 $ Annual
Receivables Period - 90 days
Average Receivables (considering a 360 day year) = 270,000 X 90/360 = 67,500
b. Receivables Turnover
The receivables turnover is 4 times (270,000 / 67,500) (since the full credit period of 90 days is utilised by customers for payment).
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