Answer (B) is correct . The average collection period, also called the days sales outstanding in receivables, is calculated as the number of days in the year over the receivables ? turnover ratio. Yonder’s can be thus calculated as follows: Average collection period = Days in year ÷ Accounts receivable turnover = 365 ÷ (Net credit sales ÷ Average net receivables) = 365 ÷ [(20,000 × $25,000) ÷ $30,000,000] = 365 ÷ ($500,000,000 ÷ $30,000,000) = 365 ÷ 16.667 = 21.9 days
Answer (A) is incorrect because The figure results from improperly using the turnover rate (16.667) as the number of days.
Answer (C) is incorrect because This figure results from improperly using average inventory instead of average receivables.
Answer (D) is incorrect because This figure results from improperly adding together the average collection period and the average number of days that inventory is held.
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