Guo marketing has sales of $430,000, cost of goods sold of $124,000, inventory of $16,000, and accounts receivable of $42,000. How many days, on average, does it take the firm to collect payment from its customers?
To calculate the average collection period, we need to divide the accounts receivable by the average daily sales.
Average daily sales = Sales / Number of days
To find the number of days, we first need to calculate the cost of goods sold as a percentage of sales.
Cost of goods sold percentage = Cost of goods sold / Sales
Cost of goods sold percentage = 124,000 / 430,000 = 0.2884
Next, we need to calculate the average inventory:
Average inventory = (Beginning inventory + Ending inventory) / 2
= (16,000 + 16,000) / 2
= 16,000
Now we can find the number of days:
Number of days = 365 * (Average inventory / Cost of goods sold)
= 365 * (16,000 / 0.2884)
≈ 20,180
Finally, we can calculate the average collection period:
Average collection period = Accounts receivable / Average daily sales
= 42,000 / (430,000 / 20,180)
≈ 1.99 days
Therefore, on average, it takes Guo Marketing approximately 1.99 days to collect payment from its customers.
To calculate the average collection period, we need to determine the average accounts receivable turnover. The formula for accounts receivable turnover is:
Accounts Receivable Turnover = Net Credit Sales / Average Accounts Receivable
First, let's calculate the net credit sales. Net credit sales can be calculated by subtracting the cost of goods sold (COGS) from the sales:
Net Credit Sales = Sales - COGS
Net Credit Sales = $430,000 - $124,000
Net Credit Sales = $306,000
Next, let's calculate the average accounts receivable. The average accounts receivable can be calculated by adding the beginning and ending accounts receivable balance and dividing it by 2:
Average Accounts Receivable = (Beginning Accounts Receivable + Ending Accounts Receivable) / 2
Average Accounts Receivable = ($42,000 + $42,000) / 2
Average Accounts Receivable = $42,000
Now, we can calculate the accounts receivable turnover:
Accounts Receivable Turnover = Net Credit Sales / Average Accounts Receivable
Accounts Receivable Turnover = $306,000 / $42,000
Accounts Receivable Turnover = 7.285
The accounts receivable turnover represents the number of times, on average, the company collects payment from its customers in a given period. To convert this into an average collection period, we can divide 365 days by the accounts receivable turnover:
Average Collection Period = 365 days / Accounts Receivable Turnover
Average Collection Period = 365 days / 7.285
Average Collection Period ≈ 50.08 days
Therefore, on average, it takes Guo marketing approximately 50.08 days to collect payment from its customers.
To find out how many days, on average, it takes for Guo Marketing to collect payment from its customers, we need to calculate the accounts receivable turnover ratio. The accounts receivable turnover ratio measures how quickly a company collects payment from its customers.
The formula for accounts receivable turnover ratio is:
Accounts Receivable Turnover Ratio = Net Credit Sales / Average Accounts Receivable
First, let's calculate the net credit sales. Net credit sales can be found by subtracting the cost of goods sold (COGS) from the total sales revenue.
Net Credit Sales = Sales - COGS
= $430,000 - $124,000
= $306,000
Next, let's calculate the average accounts receivable. To do this, we add the beginning and ending accounts receivable and divide by 2.
Average Accounts Receivable = ($42,000 + $42,000) / 2
= $42,000
Now, we can calculate the accounts receivable turnover ratio:
Accounts Receivable Turnover Ratio = Net Credit Sales / Average Accounts Receivable
= $306,000 / $42,000
= 7.286
The accounts receivable turnover ratio tells us how many times, on average, Guo Marketing collects payment from its customers in a year. To find out the average number of days it takes, we divide 365 (number of days in a year) by the accounts receivable turnover ratio.
Average Collection Period (in days) = 365 / Accounts Receivable Turnover Ratio
= 365 / 7.286
= 50.1 days (approximately)
Therefore, on average, it takes Guo Marketing around 50.1 days to collect payment from its customers.