Q.From the illustrative data in Section 1 (Net Credit Sales ₹18,00,000; Average Trade Receivables ₹1,50,000), calculate the Debtor Turnover Ratio and the Average Collection Period (in months).

The Debtor Turnover Ratio counts how many times a year the firm collects its receivables, and the Average Collection Period converts that into how long each collection takes.

Step 1 - Debtor Turnover Ratio.

Debtor Turnover Ratio = Net Credit Sales / Average Trade Receivables = 18,00,000 / 1,50,000 = 12 times.

Step 2 - Average Collection Period.

Average Collection Period = 12 months / Debtor Turnover Ratio = 12 / 12 = 1 month.

(If days are preferred: 365 / 12 = about 30 days.) …

If the question gives 365 days rather than 12 months, substitute 365 for 12 in the Average Collection Period formula - 365 / 12 = about 30 days here; t …

A very common mistake is using TOTAL sales (including cash sales, ₹20,00,000) instead of NET CREDIT sales (₹18,00,000) in the numerator - only credit sales crea …