Question 14 of 47intermediate🔧 ApplyMCQ1 mark
ABC Co. extends credit terms of 45 days to its customers. Its credit collection would be considered poor if its average collection period was.
Exercise: Test your Understanding – III | Q: (iv) | (Page 29)
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Explanation
Option C is correct. The question states that the credit terms extended to customers are 45 days. The Average Collection Period measures the average time taken to collect payments from debtors. If the Average Collection Period (47 days) exceeds the credit terms allowed (45 days), it indicates that the firm is inefficient in collecting its debts, as customers are taking longer than the stipulated time to pay. Therefore, a collection period of 47 days would be considered poor compared to the credit policy of 45 days.