If for some reason, the receivable balance decreases sharply just before the closing of the year as a result, it will hamper the whole calculation. If such averages are available for a shorter period like monthly, weekly, daily, etc., they will serve the purpose better. Here, the yearly average of receivables is taken for the sake of ease and for easy availability of the figures from the financial statements. of days in the period: Normally, it is 365 days barring some exceptions whose financial year is of, say, 18 months in place of the normal 12 months. Net credit sales: It means only credit sales should be entered here net of returns etc.īeginning Net Receivables: Beginning balance of the accounts receivables in the balance sheet.Įnding Net Receivables: Ending the balance of the accounts receivables on the balance sheet. Once you have these two inputs, you plug them into the accounts receivable turnover ratio formula: Accounts Receivable Turnover Ratio Net Credit Sales / Average Accounts Receivable. Average Collection Period = 12 Months / Receivable Turnover Ratioįor calculating the receivable turnover ratio and collection period, the user must accurately input the following components of the formula:.
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