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degree of realization risk in accounts receivable. The lower the turnover rate, the longer receivables are being held-and the less likely they are to be collected. Also, there is an opportunity cost of tying up funds in receivables for a longer period of time. The accounts receivable turnover equals:
|Annual Credit Sales
Average Accounts Receivable
Assume annual credit sales are $100,000, beginning-of-year accounts receivable are $30,000, and end-of-year accounts receivable are $20,000. The turnover is:
If sales vary greatly during the year, this ratio can become distorted unless proper averaging takes place. In such a case, quarterly or monthly sales figures should be used.
ratio obtained by dividing total credit sales by accounts receivable. The ratio indicates how many times the receivables portfolio has been collected during the accounting period.See also collection ratio , accounts receivable , aging schedule
ratio of total credit sales to average accounts receivable during an accounting period, a measure of an organization's ability to convert inventory into cash, and thus, financial efficiency. Close attention should be paid to credit terms, billing procedures, and company and industry trends.See also balance sheet ratios , ratio analysis
Copyright © 2006, 2003, 1998, 1995, 1991, 1987, 1985 by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.
Copyright c 2006, 2000, 1997, 1993, 1990 by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.
Copyright © 2007, 2000, 1997, 1987, by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.