Account Receivable Turnover Ratio = 1,000,000/ = 1.8.The sales revenue during the year is USD1,000,000.Īssess the Accounts Receivable Turnover of the company. Example and Calculation:ĪBC operates in the service industry by providing law consultant services to commercial companies.Īt the beginning of the year, ABC’s Account Receivable Outstanding is USD 500,000, and at the end of the current year, the account receivable is USD 600,000. We will also provide a deep analysis of the result of our estimate. To help you better understand, let’s move to the examples and calculations below. All of these reasons are the main factors to control Accounts Receivable Turnover. They always point to management about the long outstanding account receivables because they show weak internal control in this sensitive area. Most of the shareholders are generally concerned about management performance. More importantly, your company will pay additional cash interest expenses to the bank through overdraft if there is a cash shortage. Once the AR is long outstanding, you lose the free loan’s interest to them, but you also lose interest that you should have gained if you collect and deposit it into the banks. AR are the types of loans you provide to them in terms of free of interest. Accounts receivable are when your customers purchase goods or render services from your company on credit. There are many reasons you should make sure account receivable collecting activities are proper. Related article What is the Advertising to Sales Ratio? And How to Calculate It? Control Accounts Receivable However, if the beginning of AR is not found or provided, use the ending balance.
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