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Glossary  -> Accounts receivable turnover ratio

Accounts Receivable Turnover Ratio

The accounts receivable turnover ratio is calculated as

total credit sales in the year
average accounts receivable

Average accounts receivable can be determined 2 different ways:

bulletAdd together the a/r balances from the beginning of the year and the  end of the year, and divide by 2
bulletAdd together the a/r totals from the end of each month, and divide by 12.  This is a better way of calculating the ratio.

If this ratio decreases from one year to the next, it means the company is taking longer to collect from its customers.  If the ratio increases, the company is collecting from its customers more quickly.

See also aged accounts receivable  and day's sales outstanding.

Revised: May 20, 2021

 

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