As of January 1, 2021, the balance sheet of Bearwood Company has an Accounts Receivable balance of $175,000 and an unadjusted credit balance in the Allowance for Doubtful Accounts of $40,000.

Sales on account for $150,000.
Sales returns and allowances for $65,000.
Collections from customers for $125,000.
Customer account balances written off for $55,000.
Previously written off customer account balances for $30,000 were collected.

The company uses the percentage of receivables method to estimate bad debt expenses.
Bearwood Company estimates that uncollectible account balances are expected to be 20% of total accounts receivable as of December 31, 2021.

Question
a) Compute the Average Collection Period, if the Accounts Receivable Turnover Ratio is 5.2.
b) Explain what the Average Collection Period measures. Explain how to compute interest for a $20,000 loan at 7% interest for 9 months.

Answer rating: 100% (QA)

a Average collection period 365 days Accounts receivable ... View the full answer