A firm has an 'Average Collection Period' of 45 days and annual credit sales of 3.6 million. What is the approximate Accounts Receivable balance? (Use a 360-day year)

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SSC Audit Tax Finance P-II QUESTION #6178

Question 1

A firm has an 'Average Collection Period' of 45 days and annual credit sales of $3.6 million. What is the approximate Accounts Receivable balance? (Use a 360-day year)

$300,000
$450,000✔️
$600,000
$800,000

Correct Answer Explanation

ACP = AR / (Sales/360). $45 = AR / (3.6M / 360) \rightarrow 45 = AR / 10,000 \rightarrow AR = 450,000$.

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