top of page

Accounting word of the Week: Receivable Turnover

Many banks will compute financial ratios to evaluate the liquidity of a company’s account receivables. When they do this they use what is known as the receivable turnover ratio. The ratio measures a number of times, on average, a company collects receivables during a period.

The formula for this ratio is:

Net Sales

_______________ = Accounts Receivable Turnover

Net Receivables

To illustrate, let’s say your company reported in 2016 net sales of $500,000, its beginning and ending accounts receivable balances were $100,000 and $75,000, respectively.




($100,000 + 50,000) / 2 = 6.6 times, or every 55 days.

This information shows that the company is not successful in collecting outstanding receivables. The illustrated company should shorten the number of days to 30 days.

A company should also adopt an aging schedule. An aging schedule will help determine how long the receivables have been outstanding.

As part of services that we offer at A & C Bookkeeping Services, we provide an aging schedule to our customer and advise them of any red flags that need immediate attention. Please contact us today for your accounting needs.

Featured Posts
Recent Posts
Search By Tags
Follow Us
  • Facebook Basic Square
  • Twitter Basic Square
  • Google+ Basic Square
bottom of page