Which one of the following statements is most likely correct for a firm with an average...
Which one of the following statements is most likely correct for a firm with an average collection period of 90 days?
a)Its average daily sales are low
b)Its average daily sales are high.
c)Its current ratio will be high.
d)It is providing financing for approximately 25% of its annual sales
Homework Answers
The correct answer is d.
Explanation:- The average collection period is defined as the number of days worth of credit sales that is locked in sundry debtors. It is defined as
Average sundry debtors Average daily
credit sales .
If the average collection period is 90 days, it means that the collection is slow and providing financing for approximately 1/4 of its annual sales.
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