Accounts receivable turnover
Enter net credit sales for the year and accounts receivable at the start and end of the year. You get the accounts receivable turnover ratio and the days' sales in receivables.
- Accounts receivable turnover
- 5
On net credit sales of $400,000.00, receivables turned over 5 times, so a credit sale took 73 days to collect on average.
- Days’ sales in receivables
- 73
- Average accounts receivable
- $80,000.00
Accounts receivable turnover: 5. On net credit sales of $400,000.00, receivables turned over 5 times, so a credit sale took 73 days to collect on average.
The results are estimates for information only. They are not financial, tax, or legal advice. Check the numbers with your lender or a qualified professional before you decide. Terms of use
How to calculate
Computes the accounts receivable turnover ratio, net credit sales ÷ average accounts receivable, and the days’ sales in receivables.
Example with the default inputs (Net credit sales $400,000.00, Accounts receivable at the start $70,000.00, Accounts receivable at the end $90,000.00): On net credit sales of $400,000.00, receivables turned over 5 times, so a credit sale took 73 days to collect on average.
Method: Average accounts receivable = (beginning + ending) ÷ 2 (ending alone when no beginning is given). Turnover = net credit sales ÷ average accounts receivable. Days’ sales in receivables = 365 ÷ turnover = average accounts receivable ÷ net credit sales × 365.
- Net credit sales cover one year, the year the two balances start and end; the year has 365 days.
- Arithmetic is exact on the typed decimals; both results show to 2 decimals, halves up.
Worked examples
Each example is checked against the calculator on every build.
- Net credit sales $400,000.00, Accounts receivable at the start $70,000.00, Accounts receivable at the end $90,000.00 gives Accounts receivable turnover 5, Days’ sales in receivables 73, Average accounts receivable $80,000.00.Source: OpenStax, Principles of Accounting, Volume 1, 9.3 Determine the Efficiency of Receivables Management Using Financial Ratios (turnover = net credit sales ÷ average accounts receivable; days’ sales in receivables = 365 ÷ turnover). https://openstax.org/books/principles-financial-accounting/pages/9-3-determine-the-efficiency-of-receivables-management-using-financial-ratios: 400,000 ÷ ((70,000 + 90,000) ÷ 2) = 5 times
- Net credit sales $550,000.00, Accounts receivable at the start $50,000.00, Accounts receivable at the end $80,000.00 gives Accounts receivable turnover 8.461538, Days’ sales in receivables 43.136364.Source: OpenStax, Principles of Accounting, Volume 1, 9.3 Determine the Efficiency of Receivables Management Using Financial Ratios (turnover = net credit sales ÷ average accounts receivable; days’ sales in receivables = 365 ÷ turnover). https://openstax.org/books/principles-financial-accounting/pages/9-3-determine-the-efficiency-of-receivables-management-using-financial-ratios: 550,000 ÷ 65,000 = 8.46 times
- Net credit sales $450,000.00, Accounts receivable at the start $90,000.00, Accounts receivable at the end $85,000.00 gives Accounts receivable turnover 5.142857, Days’ sales in receivables 70.972222.Source: OpenStax, Principles of Accounting, Volume 1, 9.3 Determine the Efficiency of Receivables Management Using Financial Ratios (turnover = net credit sales ÷ average accounts receivable; days’ sales in receivables = 365 ÷ turnover). https://openstax.org/books/principles-financial-accounting/pages/9-3-determine-the-efficiency-of-receivables-management-using-financial-ratios: 450,000 ÷ 87,500 = 5.14 times
- Net credit sales $400,000.00, Accounts receivable at the end $80,000.00 gives Accounts receivable turnover 5, Days’ sales in receivables 73.
How it works
- Average accounts receivable = (accounts receivable at the start + accounts receivable at the end) ÷ 2
- Accounts receivable turnover = net credit sales ÷ average accounts receivable
- Days' sales in receivables = 365 ÷ accounts receivable turnover, which is the same as average accounts receivable ÷ net credit sales × 365
Rules:
- Net credit sales must be more than $0. Receivables are $0 or more.
- If you leave the starting balance empty, the average is the ending balance alone.
- An average of $0 gives no answer, because there is nothing to collect. A result too large or too small to show as a number also gives no answer.
- Each amount is at most $1 quadrillion. The arithmetic is exact on the decimals you type, and the days use the unrounded turnover. Both results show to 2 decimals, with halves rounded up.
Assumptions
- The sales cover one year, and the two balances are from the start and end of that year. The year has 365 days.
Worked examples by hand
Billie's Watercraft Warehouse, 2017. Credit sales $400,000; receivables $70,000 and $90,000. Average = $80,000. Turnover = 400,000 ÷ 80,000 = 5. Days = 365 ÷ 5 = 73.
Company A. Credit sales $550,000; receivables $50,000 and $80,000. Average = $65,000. Turnover = 550,000 ÷ 65,000 = 8.46 (8.4615…). Days = 365 ÷ 8.4615… = 43.14 (43.136…).
Billie's Watercraft Warehouse, 2018. Credit sales $450,000; receivables $90,000 and $85,000. Average = $87,500. Turnover = 450,000 ÷ 87,500 = 5.14 (5.142857…). Days = 87,500 ÷ 450,000 × 365 = 70.97. OpenStax prints 71.01 days because it divides 365 by the rounded 5.14.
Ending balance only. Credit sales $400,000, ending receivables $80,000. Turnover = 5, days = 73.
Other questions people ask
What is accounts receivable turnover?
Accounts receivable turnover counts how many times a year a company collects its average receivables, the money customers owe for sales on credit. A higher number means customers pay faster.
How do I calculate accounts receivable turnover?
Divide net credit sales by the average accounts receivable. The average is the starting balance plus the ending balance, divided by 2. Billie's Watercraft Warehouse had $400,000 of credit sales and receivables of $70,000 and $90,000, so its turnover was 400,000 ÷ 80,000 = 5.
What are the days' sales in receivables?
It is the average number of days a company waits to be paid for a credit sale: 365 divided by the turnover. A turnover of 5 means 365 ÷ 5 = 73 days. It is the same idea as days sales outstanding (DSO).
What if I do not know credit sales?
Many income statements show only total net sales. Use net sales in that case, and use the same choice when you compare companies or years. Cash sales make the turnover look higher.
Why does my answer differ from the textbook by a little?
Textbooks often round the turnover first and then divide 365 by the rounded number. This calculator keeps every digit until the end. For $450,000 of sales on $87,500 of average receivables, it shows 70.97 days, not the 71.01 days you get from 365 ÷ 5.14.
Is a higher turnover always better?
Usually it means collections are quick and cash comes in sooner. A very high number can also mean credit terms are so strict that some customers buy elsewhere. Compare with the payment terms you offer and with similar businesses.