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Accounts Receivable Turnover

A measure of both the quality and liquidity of accounts receivable; it indicates how often, on average, receivables are received and collected during the period; computed by dividing credit sales.

• indicates how quickly a company converts its accounts receivable into cash.
• The Accounts Receivable turnover rate is determined by dividing net sales by the average of accounts receivable.
• The number of days required to collect accounts receivable then may be determined by dividing the number of days in a year (365) by the turnover rate.

Accounts Receivable Turnover = Net Sales / Avg of Accounts Receivable

50,000 / 11000 = 4.455

Average of accounts receivable: Start (10,000) + End (12,000) = 22,000 / 2 = 11,000

For instance: 365 / 4.455 = about 81

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