![]() It represents money owed by the customers to the company. Accounts receivable is a very important concept in business. Average accounts receivable: It is the average balance of the accounts receivable during any specific period of time.Net Credit Sales can be calculated as Net Credit Sales = Gross Credit Sales – Sales Return / Sales Allowances. It does not include any sales where the payment is made in cash immediately by the customers. Net Credit sales: It is the revenue sales generated by a company by allowing the extension of credit to customers less all sales returns and sales allowances.ExplanationĪccounts Receivables Turnover Ratio Formula majorly constitutes two variables: i.e., the estimated time Anand takes to collect the cash is 180 days in case of credit sales. It means Anand collects his receivables 2 times a year or once every 180 days. ![]() Now we can calculate Anand’s accounts receivable turnover ratio as follows:Īccounts Receivables Turnover Ratio Formula = Net Credit Sales / Average accounts receivableĪccounts Receivables Turnover Ratio Formula = $25,000/ $12,500. Average accounts receivables = (Opening Balance + Closing Balance)/2.Here, Net Credit sales = $40,000-$15000.Īnand Average accounts receivable can be calculated by taking an average of accounts receivable.Net Credit Sales= Gross Credit Sales – Sales Returns.We can calculate Net Credit sales after adjusting sales return, i.e., To calculate Anand’s turnover ratio, we need to calculate Net Credit Sales and Average accounts receivable. Anand’s last year’s balance sheet showed $15,000 of accounts receivable.Īs we know, the formula for Accounts Receivables Turnover Ratio is as follows:Īccounts Receivables Turnover Ratio Formula = Net Credit Sales / Average accounts receivable. The gross credit sales for the financial year were $40,000, and $15,000 was the sales returns. You can download this Accounts Receivables Turnover Ratio Template here – Accounts Receivables Turnover Ratio Template
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