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Accounts Receivable Turnover
Accounts Receivable Turnover measures the number of times we
were able to convert our receivables over into cash. Higher turnover ratios are
desirable. Accounts Receivable Turnover is calculated as follows:
Net Sales / Average Accounts Receivable
EXAMPLE - Sales are $ 480,000, the average receivable balance
during the year was $ 40,000 and we have a $ 20,000 allowance for sales returns.
Accounts Receivable Turnover is ($ 480,000 - $ 20,000) / $ 40,000 or 11.5. We
were able to turn our receivables over 11.5 times during the year.
We are assuming that all of our sales are credit sales; i.e.
we do not have any significant cash sales.