Certified Management Accountant Practice Exam

What is the calculation for the average balance of accounts receivable during the period?

1. Ending balance of A/R divided by two

2. Beginning balance of A/R divided by two

3. (Beginning balance + Ending balance of A/R) divided by 2

4. (Beginning balance - Ending balance of A/R) divided by 2

The correct answer is: (Beginning balance + Ending balance of A/R) divided by 2

The calculation for the average balance of accounts receivable during a specific period is determined by taking the sum of the beginning balance and the ending balance of accounts receivable and dividing that sum by two. This method effectively captures the average position over the designated period, accounting for changes in the balance. Using the arithmetic mean (average) formula allows for a straightforward understanding of the average amount of accounts receivable outstanding during the period. It provides a balanced view that reflects fluctuations in the balance rather than relying on just the beginning or ending balance alone, which could misrepresent the true average. In contrast, dividing only the ending balance or the beginning balance by two would not provide an accurate measure of the average, as these figures do not encompass the combination of both starting and ending positions necessary to capture the full scope of accounts receivable across the period. The option involving the subtraction of the ending balance from the beginning balance divided by two does not represent any meaningful calculation for average balance, as it does not appropriately incorporate both balances.