EXAMPLE

The credit sales of amount to Rs 12,00,000. The outstanding amount of debtors at the beginning and end of the year were Rs 1,40,000 and Rs 1,60,000 respectively. Determine the debtor turnover ratio and the average collection period.

Solution

1

We can get the debtor turnover dividing the months (days) in the year by the average collection period (i.e. 12 + 1.5 = 8). Likewise, if we divide the months (days) in the year by the debtor turnover ratio, we get the average collection period (12 + 8 = 1.5).

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