Calculate Average Collection Period.

The correct option is 45 days.

The average collection period represents the average number of days it takes for a business to convert its credit sales into cash. It is a critical financial metric used to evaluate the efficiency of a company's credit management and collection policies.

The formula to calculate the average collection period is:
$$\text{Average Collection Period}=\frac{\text{Average Accounts Receivable}}{\text{Net Credit Sales}}��\text{Number of Days in a Year}$$
Alternatively, it can be calculated using the accounts receivable turnover ratio (assuming a standard financial year of 360 days):
$$\text{Average Collection Period}=\frac{\text{360 days}}{\text{Accounts Receivable Turnover Ratio}}$$

To understand how this calculation works, consider the following illustrative financial scenario:
1. Annual Net Credit Sales = $800,000
2. Average Accounts Receivable outstanding = $100,000
3. Financial year length = 360 days

First, we calculate the accounts receivable turnover ratio:
$$\text{Turnover Ratio}=\frac{\$\mathrm{800,000}}{\$\mathrm{100,000}}=8$$
This indicates that the company collects its outstanding credit balance 8 times per year.

Next, we determine the average collection period by dividing the number of days in the year by the turnover ratio:
$$\text{Average Collection Period}=\frac{\text{360 days}}{8}=\mathrm{45\; days}$$
Thus, the average collection period for the company is 45 days.