If trade receivables are 180,000 and annual revenue is 2,700,000, what is the collection period in days?

If trade receivables are 180,000 and annual revenue is 2,700,000, what is the collection period in days?

• A. 24 days
• B. 60 days
• C. 8 days
• D. 45 days

Answer: (A)

The concept being tested is how to calculate the average collection period, i.e., how long it takes on average to collect cash from customers. The formula is: average trade receivables ÷ annual credit sales × 365 days. Assuming all annual revenue is on credit, annual credit sales ≈ 2,700,000. So: 180,000 ÷ 2,700,000 = 0.0667 0.0667 × 365 ≈ 24.3 days So the collection period is about 24 days, which matches the option around 24 days.

The concept being tested is how to calculate the average collection period, i.e., how long it takes on average to collect cash from customers. The formula is: average trade receivables ÷ annual credit sales × 365 days.

Assuming all annual revenue is on credit, annual credit sales ≈ 2,700,000. So:

180,000 ÷ 2,700,000 = 0.0667

0.0667 × 365 ≈ 24.3 days

So the collection period is about 24 days, which matches the option around 24 days.