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The average collection period of Essence of Skunk Fragrances, Ltd., is 26.5
Why is the average collection period important?
An organization's average collection period is the average number of days it takes to collect and turn its accounts receivable into cash. It is one of the six key formulas used to calculate short-term liquidity, or a company's capacity to pay its obligations (current liabilities) as they become due.
The effectiveness of a company's accounts receivable management practices is indicated by the average collection period. It is crucial for businesses whose cash flows are heavily dependent on their receivables. If companies want to have enough money on hand to pay their bills, they must control their average collection period.
Given:
Average collection period = .45(10) + .55(40) = 26.5
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The complete question is:
Essence of skunk fragrances, limited, sells 9,300 units of its perfume collection each year at a price per unit of $415. all sales are on credit with terms of 1/10, net 40. the discount is taken by 45 percent of the customers. Calculate the average collection period. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
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