Chapter 20, Problem 20.1CTF

What is the difference between the accounts receivable period and the cash collection period?

Summary Introduction

To discuss: The accounts receivable period and accounts collection period.

Introduction:

Accounts receivable period determines the average days that receivables are outstanding.  It is also termed as days sales outstanding. Cash collection period can be determined by dividing the number of days in a year with average receivables turnover.

Explanation of Solution

The period that passes among the date of sales and the date the customer or buyer promises (mails) the payment for that specific sale.

Conclusion

One way to decrease the accounts receivable period is to speed up processing, clearing, and checking the mails.