What is the days’ sales in accounts receivable ratio?
The days’ sales in accounts receivable ratio, also known as the number of days of receivables, tells you the average number of days it takes to collect an account receivable. Since the days’ sales in accounts receivable is an average, you need to be careful when using it.
The calculation for determining the days’ sales in accounts receivable is the number of days in the year (usually 360 or 365 days is used) divided by the accounts receivable turnover ratio for a specific year. If a company’s accounts receivable turnover ratio was 10, then the days’ sales in accounts receivable is 36 days (360 days divided by the turnover ratio of 10).
Since the accounts receivable turnover ratio used in the days’ sales in accounts receivable was based on 1)Â credit sales during a one-year time period, and 2) the average accounts receivable balances during that one-year period, the 36 days calculated above is an average. It is possible that within the accounts receivable there are some accounts which are 120 days or more past due. This information might be hidden by the average, because the average included some accounts that paid early. Therefore, it is best to review an aging of accounts receivable by customer to understand the detail behind the days’ sales in accounts receivable ratio.
Download our Days’ Sales in Accounts Receivable Form and Template.
Learn more about Financial Ratios.
Take our Financial Ratios Exam.
About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years. He is the creator and author of all the content found on AccountingCoach.com. You can read 1,500 testimonials praising his ability to explain accounting in a way that anybody can understand.
|Learn more about AccountingCoach Pro|
Accounting Q&A by Topic
Over 800 questions have been answered in the following categories:
- Accounting Basics
- Accounting Careers
- Accounting Equation
- Accounting Principles
- Accounts Payable
- Accounts Receivable and Bad Debts Expense
- Activity Based Costing
- Adjusting Entries
- Balance Sheet
- Bank Reconciliation
- Bonds Payable
- Break-even Point
- Business Investments
- Cash Flow Statement
- Chart of Accounts
- Cost and Managerial Accounting
- Debits and Credits
- Financial Accounting
- Financial Ratios
- Improving Profits
- Income Statement
- Inventory and Cost of Goods Sold
- Lower of Cost or Market
- Manufacturing Overhead
- Nonmanufacturing Overhead
- Payroll Accounting
- Present Value of an Ordinary Annuity
- Present Value of a Single Amount
- Standard Costing
- Stockholders’ Equity