Question
Annual sales of a company are ₹36,00,000, out of which
25% are cash sales. The balance represents credit sales. The company’s Debtors at year-end are ₹6,00,000, and additionally, Bills Receivable worth ₹3,00,000 are held. Assuming a 360-day year, calculate the Average Collection Period (ACP).Solution
1. Step 1: Find credit sales Credit Sales = Total Sales − Cash Sales = 36,00,000 − (25%×36,00,000) = 36,00,000 − 9,00,000 = ₹27,00,000 Step 2: Average Receivables Debtors + Bills Receivable = ₹6,00,000 + ₹3,00,000 = ₹9,00,000 3. Step 3: Debtors Turnover Ratio (DTR) DTR = Credit Sales/Average Receivables = 27,00,000/ 9,00,000 = 3 Step 4: Average Collection Period (ACP) ACP = 360/ DTR = 360/ 3=120 days
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