Question

A firm normally has trade Receivables equal to two months' credit Sales. During the coming year it expects Credit Sales of ₹ 7,20,000 spread evenly over the year (12 months). What is the estimated amount of Trade Receivables at the end of the year?

Answer 1

Debts Collection Period = `(12  "months")/"Debtors Turnover Ratio"`

`2 = 12/"Debtors Turnover Ratio"`

Debtors Turnover Ratio = 6 times

Debtors Turnover Ratio = `"Credit Sales"/"Debtors at the end"`

`6 = 720000/"Debtors at the end"`

Debtors at the end = Rs 120000