![]() Receivable turnover in days = 365 / Receivable turnover ratio If you want to know more precise data, divide the AR turnover ratio by 365 days. The accounts receivable turnover ratio formula looks like this:Īccounts Receivable Turnover Ratio = Net Credit Sales / Average Accounts Receivable Both numbers should represent the same accounting period. Calculate the accounts receivable turnover ratio.This number forms the nominator in the equation. This is the revenue generated from credit sales, minus any returns. This gets you the denominator in the equation, the average accounts receivable. Add the value of AR at the beginning of your desired period, to the value at the end and divide by two. Calculate average accounts receivable.The following is a step-by-step guide to getting those numbers and a final AR turnover ratio. In order to calculate the accounts receivable turnover ratio, you must calculate the nominator (net credit sales) and denominator (average accounts receivable). How to Calculate Accounts Receivable Turnover Ratio (Step by Step) Revenue in each period is multiplied by the turnover days and divided by the number of days in the period. The AR balance is based on the average number of days in which revenue is received. In order to know the average number of days it takes a client to pay on a credit sale, the ratio should be divided by 365 days. In financial modeling, the accounts receivable turnover ratio is used to make balance sheet forecasts. ![]() Net Annual Credit Sales ÷ Average Accounts Receivables = AR TurnoverĪccounts Receivables Turnover Ratio ÷ 365 = AR Turnover (in days) (Beginning Accounts Receivable + Ending Accounts Receivable) ÷ 2 = Average AR Gross Sales – Refunds/Returns – Sales on Credit = Net Sales That number is then divided by 2 to determine an accurate financial ratio. Net sales is everything left over after returns, sales on credit, and sales allowances are subtracted.Īverage accounts receivables is calculated as the sum of the starting and ending receivables over a set period of time (usually a month, quarter, or year). The Accounts receivable turnover ratio is calculated by dividing net credit sales by the average accounts receivable. Calculating Accounts Receivable Turnover Ratio The ratio itself measures how many times a company collects AR (on average) throughout the year. The ratio is also used to quantify how well a company manages the credit they extend to customers, and how long it takes to collect the outstanding debt. This includes automated invoicing, PO matching, and bank reconciliation.
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