A limited company made Credit Sales of Rs. 4,00,000 during the financial period. If the collection period is 36 days and year is assumed to be 360 days, calculate: (i) Trade Receivables Turnover Ratio; (ii) Average Trade Receivables; (iii) Trade Receivables at the end when Trade Receivables at the end are more than that in the beginning by Rs. 6,000.

SOLUTION

(i)	Debt collection period	360 / trade receivable turnover ratio
	36	360 / Debtors turnover ratio
	Trade receivable turnover ratio	= 10
(ii)	Trade receivable turnover ratio	Net Credit sales / Average trade receivable
	10	4,00,000 / Average trade receivable
	Average trade receivable	= 4,00,000

Average receivables	Opening Receivables + Closing Receivables / 2
40,000	= x + x + 6,000 / 2
Or, 80,000	= 2x + 6,000
Or, 2x	= 74,000
Or, x	= 37,000

∴ Opening Trade Receivables = x = Rs. 37,000
Closing Trade Receivables = x + 6,000
= 43,000