![]() ![]() This is the number of times the business collects its average receivables in a year. The accounts receivable turnover ratio for business would be: Its accounts receivable balance was $47,000 at the beginning of the financial year and $39,000 at the end of the financial year. Returns and allowances for that year were $35,000. Let’s say a business has $650,000 in credit sales for the year. Now that we know how to calculate the accounts receivable turnover ratio, let’s consider a hypothetical example. ![]() In this case, you would use annual credit sales (minus return and allowances) to get the ratio for the one-year accounting period. If you want to know the accounts receivable ratio for the year, you add the accounts receivable balance at the beginning of the year to that at the end of the year and divide by 2. Net credit sales are those invoiced – not cash sales (less sales returns or allowances)Īverage accounts receivable is the sum of the beginning and ending accounts receivable divided by 2. Net sales on credit ÷ Average accounts receivable We use the accounts receivable turnover ratio equation as follows: This is an efficiency ratio that shows how many times over a given period a company collects its average accounts receivable. What is the accounts receivable turnover ratio? Knowing how to calculate and interpret the ratio will help you benchmark your receivables functions and take steps to improve them. The accounts receivable turnover ratio is an accounting metric that shows how well a company collects its receivables from customers. ![]()
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