If cash sales is Rs. 40,000; credit sales Rs. 80,000 and the amount of debtors Rs. 20,000, the average collection period will be (consider 360 days in a year):
A. 180 days
B. 120 days
C. 90 days
D. 60 days
Answer: Option C
This Question Belongs to Commerce >> Accounting
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We just take credit sale on finding the Average collection period (ACP).
So, the formula of ACP is = Account Receivable OR Debtors divided by Sales / 360
= 20,000 divided by 80,000 / 360
= 20,000 / 222.22222
= 90-days.
So, the Answer C is right.