The Average Collection Period for Receivables Is Computed by Dividing

question 122

Multiple Choice

The average collection period for receivables is computed by dividing 365 days by

• A) net credit sales.
• B) average accounts receivable.
• C) ending accounts receivable.
• D) accounts receivable turnover ratio.

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Definitions:

Accrual Basis Accounting

Revenues are recognized when goods and services are provided to customers, and expenses are recognized in the same period as the revenues to which they relate, regardless of when cash is received or paid.

Revenues

The total amount of money received or expected to be received by a company from its business activities, such as the sale of goods or services, before any expenses are deducted.

Expenses

Costs incurred in the process of earning revenue; general operational costs of a business.

Operating Revenue

Revenue earned from a company’s primary business activities, excluding items like investment revenue.