This is concept check 5 in reading 46. Company’s weighted average collection period increases from 45 to 55 days. It’s average days of receivables decreases from 22 to 13 days. It is most likely that : a) Company relaxed it’s credit standards b) Fewer customers are taking advantage of discounts for early payment c) Credit customers are paying more slowly d) credit sales are a greater part of business this year. The answer is C. I searched for it ,and found that this has been answered on below url. http://www.analystforum.com/phorums/read.php?11,820738,820780#msg-820780 But my confusion is that aren’t average collection period and ’ avg days of receivables’ same? Thanx
Days of receivables applies to all sales. If a customer pays with cash, the days of receivables is zero. Collection period only applies to sales made to customers who utilize credit.