ACCA Financial Management (F9) Certification Practice Exam

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Prepare for the ACCA Financial Management (F9) Certification Exam with engaging quizzes and interactive content. Dive deep into financial management concepts and boost your exam confidence with questions that come with detailed explanations.

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What does the Average Collection Period measure?

(Receivables / (Credit Sales)) x 365
(Credit Sales / Receivables) x 365
(Total Sales / Receivables) x 365
(Receivables / Total Sales) x 365

The correct answer is: (Receivables / (Credit Sales)) x 365

The Average Collection Period is a financial metric that gauges the average number of days it takes for a company to collect payments from its credit customers. This is a crucial measure of a company's efficiency in managing its accounts receivable. The formula indicated in the correct choice accurately reflects this concept by dividing receivables by credit sales, which gives an average collection period in terms of days. By taking the receivables and dividing it by credit sales, you are measuring how long, on average, it takes to convert credit sales into cash. Multiplying this ratio by 365 gives you the average number of days, making this metric easily interpretable for financial analysis. In contrast, the other options revolve around different methodologies that do not correctly represent the Average Collection Period. For example, measuring total sales instead of just credit sales does not accurately depict how quickly a company collects money only from its credit customers.