Contemporary Media Sign Company sells on account. Recently, Contemporary reported the following figures:
2012 2011
Net sales. . . . . . . . . . . . . . . . . . . . . . . $ 572,000 $600,000
Receivables at end of year . . . . . . . . . 38,700 46,100
Requirements
1. Compute Contemporary’s average collection period on receivables during 2012.
2. Suppose Contemporary’s normal credit terms for a sale on account are “2/10, net 30.” How well does Contemporary’s collection period compare to the company’s credit terms? Is this good or bad for Contemporary?