The formula to calculate the average collection period (ACP) is:
\[ \text{ACP} = \frac{\text{AR} \times \text{Days}}{\text{TCS}} \]
or
\[ \text{ACP} = \frac{\text{AR} \times 365}{\text{TCS}} \]
The average collection period represents the average number of days it takes for a company to collect its accounts receivable.
Let's assume the following:
To calculate the average collection period:
\[ \text{ACP} = \frac{25,000 \times 365}{100,000} = 91.25 \text{ days} \]
So, the average collection period for this example is approximately 91 days.
