![]() Calculate the accounts receivable turnover ratio. Accounts Receivables Turnover Ratio Formula 25,000/ 12,500. Now we can calculate Anand’s accounts receivable turnover ratio as follows: Accounts Receivables Turnover Ratio Formula Net Credit Sales / Average accounts receivable. Average accounts receivable during the period were $23,880. Here Average accounts receivable (10,000+15000)/2. Customers returned goods invoiced at $31,400 during the year. Accounts receivable turnover is an efficiency ratio or activity ratio that measures how many times a business can turn its accounts receivable into cash. Total sales of Company B during the year ended December 31, 20X0 were $984,000. Calculate the receivables turnover ratio. Its accounts receivable at July 1, 20X9 and June 30, 20Y0 were $43,300 and $51,730 respectively. Net credit sales of Company A during the year ended June 30, 20Y0 were $644,790. Also, very high values of this ratio may not be favorable, if achieved by extremely strict credit terms since such policies may distance potential buyers thus reducing sales. However, a normal level of receivables turnover is different for different industries. ![]() Increase in accounts receivable turnover overtime generally indicates improvement in the process of cash collection on credit sales. Generally, a high value of accounts receivable turnover is favorable and lower figure may indicate inefficiency in collecting outstanding sales. AnalysisĪccounts receivable turnover measures the efficiency of a business in collecting its credit sales. The beginning and ending accounts receivable may be found on the balance sheets of the first and the last day of the accounting period.Īccounts receivable turnover is usually calculated on annual basis, however for the purpose of creating trends, it is more meaningful to calculate it on monthly or quarterly basis. The goal is to maximize sales, minimize the receivable balance, and generate a high turnover rate. So, if you have credit sales for the month that total 400,000 and the account receivable balance is, for example, 60,000, the turnover rate is 6.7. We can obtain the net credit sales figure from the income statement or from the notes to the financial statements of a company.Īverage accounts receivable figure may be calculated simply by dividing the sum of beginning and ending accounts receivable by 2. Accounts Receivable Turnover Ratio Net Credit Sales / Average Accounts Receivable. FormulaĪccounts receivable turnover is calculated using the following formula: It is an activity or efficiency ratio which estimates the number of times a business collects its average accounts receivable balance during a period. Accounts receivable turnover (or simply receivables turnover) is the ratio of net credit sales of a business to its average accounts receivable during a given period, usually a year.
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