A high A/R turnover ratio means you collect from customers quickly, indicating that you have a strict credit policy and a solid collections process in place to ensure prompt payments.It gives you information about your credit policy and collection process. Similar to other financial ratios, the A/R turnover ratio is only one piece of information about a business’s ability to collect from its customers. Take the net credit sales and divide it by the average A/R balance.Ī/R Turnover Ratio = Net Credit Sales / Average A/R How To Interpret the Accounts Receivable Turnover Ratio Step 3: Divide Net Credit Sales by Average A/RĪfter calculating the average A/R balance and obtaining the net credit sales for the period, you can calculate the A/R turnover ratio. Note that you can generate an income statement on QuickBooks in a few minutes. Net Credit Sales = Sales on Credit – Sales Returns – Sales Allowances You can obtain this information from your profit and loss (P&L) report, also known as the income statement. This figure shouldn’t include any product returns, allowances, and cash sales. Net credit sales is the amount of revenue generated that a business extends to customers on credit. ![]() It’s calculated by adding the A/R balances at the start and end of the period and dividing the total by two.Īverage A/R = (Beginning A/R + Ending A/R) / 2Īccounting software like QuickBooks Online lets you run a balance sheet report for the beginning of the period and the end of the period to obtain these numbers. The average A/R is the balance owed by customers in a given period. ![]() New Calculation Step 1: Calculate Average A/R
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |