1. What is Accounts Receivable Turnover?

The Accounts Receivable Turnover ratio measures how efficiently a company collects credit sales from customers. It shows how many times a company collects its average accounts receivable balance during a period.

2. How Does the Calculator Work?

The calculator uses the Accounts Receivable Turnover formula:

Where:

• Net Credit Sales — Total credit sales minus returns and allowances
• Average Accounts Receivable — (Beginning AR + Ending AR) / 2

Explanation: A higher ratio indicates more efficient collection of receivables, while a lower ratio may suggest collection problems.

3. Importance of AR Turnover Ratio

Details: This ratio is crucial for assessing a company's credit policies, collection efficiency, and overall liquidity. It helps identify potential cash flow problems.

4. Using the Calculator

Tips: Enter net credit sales and average accounts receivable in dollars. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good accounts receivable turnover ratio?
A: The ideal ratio varies by industry, but generally higher is better. Compare to industry averages for meaningful analysis.

Q2: How often should this ratio be calculated?
A: Typically calculated annually, but can be done quarterly for more frequent monitoring.

Q3: What if my ratio is too low?
A: A low ratio may indicate poor credit policies, ineffective collections, or customers with financial difficulties.

Q4: How does this relate to days sales outstanding (DSO)?
A: DSO = 365 / AR Turnover Ratio. They measure the same thing but in different units (days vs. times per year).

Q5: Should cash sales be included?
A: No, only credit sales should be included in the numerator as cash sales don't create accounts receivable.