Explain how to compute the average collection period and why it is a critical factor in creating the collections of receivables budget (see Exhibit 23-13).
Exhibit 23-13

NTI BUDGETED ACCOUNTS RECEIVABLE AND CASH COLLECTIONS FROM CUSTOMERS FOR 2011 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Beginning balance of Add: Sales on account from Total accounls receivable $150,000 $ 187,500 2,250,000 $2,437,500 562,500 3,000,000 $3,562,500 receivables sales budget (Exhibit 23-4) during the month from cuslomers: $225,000 600,000 S825,000 750,000 $900,000 Less total cash receipls Previous quarter. This quarter $225,000 $150,000 S 187,500 562,500 450,000 6750 562,500 71250 1687500 1.875,000 2250,000 2 812 500 Estimated ending balance in accounts recelvable S150,000 $187,500 $ 562,500 750,000