How To Calculate Accounts Receivable Turnover

Video: How To Calculate Accounts Receivable Turnover

Video: How to Calculate Your Accounts Receivable Turnover Ratio: Formula and Examples 2024, November

2024 Author: Isaiah Gimson | [email protected]. Last modified: 2023-12-17 02:53

One of the indicators of the analysis of the financial condition of the organization is the turnover of accounts receivable. Accounts receivable turnover characterizes the average period of time during which funds from buyers go to the organization's account. You can calculate this indicator as follows.

How to calculate accounts receivable turnover

It is necessary

- Balance sheet and Profit and Loss Statement for the reporting period;
- the formula for calculating the turnover of accounts receivable:
Accounts receivable turnover (in turnover) = (Sales proceeds) / (Average accounts receivable);
- formula for calculating average receivables:
Average accounts receivable = (Accounts receivable at the beginning of the period + Accounts receivable at the end of the period) / 2;
- the formula for calculating the turnover of accounts receivable in days:
Accounts receivable turnover (in days) = ((Average accounts receivable) / (Sales revenue for the period)) * number of days of the reporting period.

Instructions

Step 1

Calculate the average receivable amount for the analyzed period. Take the data on the amount of receivables at the beginning and at the end of the period from the balance sheet for the reporting period. Add these two numbers and divide by 2. This will calculate the average receivable.

Step 2

Divide the revenue for the analyzed period by the amount of the received average receivables. Take the data on the amount of revenue in the Profit and Loss Statement for the reporting period. By dividing the amount of revenue by the amount of the average receivable, you will find the turnover of receivables in turnover. Count the number of days in the analyzed period. Multiply the resulting ratio of accounts receivable turnover in turnover by the number of days in the analyzed period. This will calculate the accounts receivable turnover in days.

Step 3

Calculate the turnover of accounts receivable for the previous similar period. Compare and analyze the results obtained. If this indicator tends to decrease, it means that buyers pay their bills faster and the organization's ability to pay is improving.

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