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receivables collection period

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › receivables collection period

  • This topic has 5 replies, 2 voices, and was last updated 6 years ago by MikeLittle.
Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • February 14, 2016 at 9:20 pm #300453
    dumonde
    Member
    • Topics: 28
    • Replies: 58
    • ☆☆

    the following information has been taken or calculated from Fowlers financial statements for the year ended 30 September 2014.

    Fowlers cash cycle at 30 September 2014 is 70 days
    its inventory turnover is six times
    Year end trade payables are $230,000
    Credit purchases for the year were $2m
    Cost of sales for the year was $1.8m

    What is fowlers trade receivables collection period as at 30 September 2014?

    A, 106, B, 89, C, 56 D, 51

    February 15, 2016 at 8:19 am #300483
    MikeLittle
    Keymaster
    • Topics: 26
    • Replies: 22699
    • ☆☆☆☆☆

    Where’s this one from? It’s not one of mine, that’s for sure!

    Wherever it’s from, presumably the source also gives you an answer. Does it not also give an explanation?

    February 15, 2016 at 5:57 pm #300606
    dumonde
    Member
    • Topics: 28
    • Replies: 58
    • ☆☆

    Mike,

    Thanks for getting back to me, to my surprise this question was in the pilot paper for F7 so an ACCA link perhaps.

    Further to my surprise as this was one of two of the MCQ questions I got wrong the answer was D 51 with the explanation as follows:-

    Inventory turnover is 6 so 365/6 =61
    The cash cycle of 70 and payables cycle of 42 days
    Thus (70-61+42)= 51

    A little confusing send with both the terminology and answer if honest…

    Thanks

    February 15, 2016 at 7:27 pm #300618
    MikeLittle
    Keymaster
    • Topics: 26
    • Replies: 22699
    • ☆☆☆☆☆

    Payables days is 42 days (230,000 x 365 / 2,000,000)

    Inventory turnover is simply the average number of days from buying inventory to selling it

    And receivables days is the average number of days from selling inventory until you receive the money

    And finally, the cash cycle is the difference between the aggregate number of days taken from buying inventory, converting it into sales and collecting the money (ie days held in inventory + days held as receivables) compared with the days taken on average to pay suppliers

    In numbers, that’s 70 = 61 + Receivables days – 42

    Rearranging that gives us receivables days of 51

    Better?

    February 15, 2016 at 8:26 pm #300622
    dumonde
    Member
    • Topics: 28
    • Replies: 58
    • ☆☆

    Ah yes, I see it now. The cash cycle is effectively the operating cycle.

    Inventory is 61
    payables is (42)
    receivables days ?
    operating cycle is 70

    Hence the missing figure is 51….

    So silly, typical ACCA keeping you on your toes, forcing you to really READ the question.

    February 16, 2016 at 8:50 am #300650
    MikeLittle
    Keymaster
    • Topics: 26
    • Replies: 22699
    • ☆☆☆☆☆

    That’s an invaluable lesson learned, then!

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