CFA Practice Question

There are 120 practice questions for this study session.

CFA Practice Question

Which of following equations correctly specifies the level of the firm's receivables balance?

I. Average annual sales / Average collection period
II. Average collection period / Average daily sales
III. Average daily sales X Average collection period
IV. Credit sales / Accounts receivable turnover
A. II and IV
B. I and IV
C. III and IV

User Contributed Comments 7

User Comment
jamyandy I have some difficulty twisting the relevant formula to get the Accounts Receivable to be the subject. I need to understand what is the receivables balance being referred to? Is it the Average Receivables or the total Receivables?
StanleyMo hmm, averages daily sales = 5millions, average collection period if let say 15 days, we have receivables of 45millions.
boddunah receivable balance is same as receivables outstanding.analystnotes was refering to denominator of Account Receivable T/O .
A/R T/O = credit sales/ave.receivables
ranjansahay are all "average daily sales" on credit?
poomie83 yes that is the assumption as most businesses give the purchaser net trading days to pay for the sales
gill15 III. [(Sales) / 365] * [(365 *Avg Receivables)/Sales) = Avg Receivables
MathLoser Ugh, they better use "average daily credit sale".
Using "average daily sale" alone is wrong.
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