Average Collection Period represents the average number of days taken by a business to collect payment from its debtors.
The formula is:
Average Collection Period = Credit SalesTotal Debtors×365 days
Calculating Total Debtors:
Total Debtors = Trade Debtors + Bills Receivable
Total Debtors = Rs. 59,000 + Rs. 48,000 = Rs. 1,07,000
(Bills Receivable represent amounts receivable from customers, so they are included in total debtors)
Assuming Credit Sales:
Since credit sales are not separately given, Revenue from Operations is treated as Credit Sales.
Credit Sales = Rs. 8,75,000
Calculating Average Collection Period:
Average Collection Period = 8,75,0001,07,000×365
= 0.1223×365
= 44.64 days
= 45 days (rounded to nearest value)
This indicates that the business takes approximately 45 days on average to collect cash from its credit customers.