A Level Accounting (9706)•9706/13/M/J/23
Explanation
Trade Receivables Days Formula Application
Steps:
- Determine credit sales from receipts from credit customers: $27,000.
- Apply formula: (Year-end trade receivables ÷ Credit sales) × 365.
- Calculate: (27,000) × 365 = 55.4 days.
- Round to nearest whole number: 56 days (option C).
Why C is correct:
- Matches the standard formula for trade receivables days, using collections as credit sales proxy and year-end receivables, per accounting conventions for debtor collection period.
Why the others are wrong:
- A: Uses total sales (27,000 receipts = $36,000), ignoring credit sales only, yielding ~42 days.
- B: Results from erroneous intermediate calculation, like partial averaging, not the direct formula.
- D: Arises from dividing by overstated receivables or understated sales, inflating days to 63.
Final answer: C
Topic: Analysis and communication of accounting information
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