Perfect Purchase Electronics Selected Income Statement Items, 2009 Cash Sales $1

Question

Perfect Purchase Electronics Selected Income Statement Items, 2009

Cash Sales           $1,500,000

Credit Sales    $8,500,000

Total Sales          $10,000,000

COGS                   $6,000,000

Perfect Purchase Electronics Selected Balance Sheet Accounts

                                       12/31/2009         12/31/2008           Change

Accounts Receivable      $270,000              $240,000             $30,000

Inventory                        $125,000               $100,000             $25,000

Accounts Payable          $110,000                 $90,000             $20,000

***Using the information provided, what is the collection cycle for the firm?

Explanation / Answer

Collection cycle = Average accounts receivable
Annual credit sales / 365

=((270,000+240,000)/2)/(8,500,000/365)

= 10.95 days

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