How To Find Average Accounts Receivable On Balance Sheet

Accounts receivable turnover

Accounts receivable turnover describes the wellness of a business. Bankrate explains.

What is accounts receivable turnover?

Accounts receivable turnover is the number of times per year that a business collects its average accounts receivable. Accountants and analysts apply accounts receivable turnover to measure how efficiently companies collect on the credit that they provide their customers.

Deeper definition

Accounts receivable turnover is described equally a ratio of average accounts receivable for a catamenia divided by the cyberspace credit sales for that aforementioned period. This ratio gives the business organization a solid idea of how efficiently it collects on debts owed toward credit it extended, with a lower number showing higher efficiency.

To summate the accounts receivable turnover, start by adding the showtime and ending accounts receivable and separate information technology by 2 to calculate the average accounts receivable for the menses. Take that figure and split it into the net credit sales for the year for the boilerplate accounts receivable turnover. The formula looks similar the following:

Step 1: Beginning accounts receivable + catastrophe accounts receivable / 2 = net accounts receivable
Step 2: Net credit sales / accounts receivable = accounts receivable turnover

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Accounts receivable turnover instance

Corporation A has a beginning accounts receivable of $125,000 and an ending accounts receivable of $235,000 and a net credit sales of $2.eight million, the formula would look like this:

Step one: $125,000 + $235,000 = $360,000 / ii = $180,000
Stride ii: $2,800,000 / $180,000 = 15.55

Corporation A has an accounts receivable turnover of 15.55. Company C, its biggest competitor has an accounts receivable turnover of 21, while Corporation B has an accounts receivable turnover of 10. Based on these numbers, Corporation B has the strongest collections.