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What is Accounts Receivable turnover?

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 What is Accounts Receivable turnover?
Soyab Shaikh

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Join Date: Aug 2013
What is Accounts Receivable turnover? - August 1st, 2013

Accounts receivable turnover forms a part of the ratio analysis of a firm. It is the ratio which quantifies the effectiveness of a firm’s policy with regards to credit extension and collection of debt. It measures the number of times, the credit is collected throughout an year.

Mathematically, it is expressed as:

Formula:

Accounts Receivable Turnover= (Net Credit Sales)/(Average Accounts Receivable)

A high value for the ratio implies that the firm follows a tight credit policy and manages its receivables efficiently while a low value implies that there are some collection problems and there is need for improvement.
Some firms may not have data about the credit sales and hence net sales is used which makes the ratio a bit deceiving depending on the proportion of cash sales.

Receivable Turnover Ratio is one of the accounting activity ratios, a financial ratio. This ratio measures the ==Sources==

• Receivables Turnover Ratio = Net receivable sales/ Average net receivables[1]
• Average Collection Period = 365 / Receivables Turnover Ratio[2]
• Average Debtor collection period: Trade Receivables/Credit Sales x 365 = Average collection period in days,[3]
• Average Creditor payment period: Trade Payables/Credit Purchases x 365 = Average Payment period in days,[4]

There are many differences between industries: with the highest receivables turnover ratio there are industries such as Apparel Stores (52,3) and Luxury Goods (22,1) where customers usually pay in cash.With the lowest receivables turnover ratio there are industries such as Communication Equipment (5,4), Oil & Gas Equipment & Services (4,9), Infrastructure Operations (4,6) and Farm & Construction Equipment (3,9) that are not paid by customers in cash or within a short period of time

Example

Assume,

Annual Credit Sales = Rs. 10,000

Accounts receivable at the beginning of the year = Rs. 1000

Accounts receivable at the end of the year = Rs. 3000

So,

Average Accounts receivable = (1000 + 3000)/2 = Rs. 2000

Accounts Receivable turnover = 10000/2000 = 5

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 Re: What is Accounts Receivable turnover?
Jitendra Mazee

Student of Bachelor of Engineering at RGTU Bhopal

Institute: RGTU Bhopal
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Posts: 27,848
Join Date: Jan 2016
Re: What is Accounts Receivable turnover? - April 18th, 2016

Quote:
 Originally Posted by soyab.reloaded Accounts receivable turnover forms a part of the ratio analysis of a firm. It is the ratio which quantifies the effectiveness of a firm’s policy with regards to credit extension and collection of debt. It measures the number of times, the credit is collected throughout an year. Mathematically, it is expressed as: Formula: Accounts Receivable Turnover= (Net Credit Sales)/(Average Accounts Receivable) A high value for the ratio implies that the firm follows a tight credit policy and manages its receivables efficiently while a low value implies that there are some collection problems and there is need for improvement. Some firms may not have data about the credit sales and hence net sales is used which makes the ratio a bit deceiving depending on the proportion of cash sales. Receivable Turnover Ratio is one of the accounting activity ratios, a financial ratio. This ratio measures the ==Sources== • Receivables Turnover Ratio = Net receivable sales/ Average net receivables[1] • Average Collection Period = 365 / Receivables Turnover Ratio[2] • Average Debtor collection period: Trade Receivables/Credit Sales x 365 = Average collection period in days,[3] • Average Creditor payment period: Trade Payables/Credit Purchases x 365 = Average Payment period in days,[4] There are many differences between industries: with the highest receivables turnover ratio there are industries such as Apparel Stores (52,3) and Luxury Goods (22,1) where customers usually pay in cash.With the lowest receivables turnover ratio there are industries such as Communication Equipment (5,4), Oil & Gas Equipment & Services (4,9), Infrastructure Operations (4,6) and Farm & Construction Equipment (3,9) that are not paid by customers in cash or within a short period of time Example Assume, Annual Credit Sales = Rs. 10,000 Accounts receivable at the beginning of the year = Rs. 1000 Accounts receivable at the end of the year = Rs. 3000 So, Average Accounts receivable = (1000 + 3000)/2 = Rs. 2000 Accounts Receivable turnover = 10000/2000 = 5
Hey friend, this is great information about the accounts receivable turnover and i am very glad that you shared here. I am sure it is going to help many student and i am also sharing a document which would give detailed information on same topic.
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