days sales in accounts receivable formula

Therefore, DSO of the company is 0.1 X 31 = 3.1 days. Now we know the company’s total credit sales which are USD 600,000, averages of AR which is SUD 60,000. Related article Note Receivable - Definition, Explanation, and Journal entry What is the DSO of the company for the month of December? Now, let move to the example so that we can clearly understand.Īssume a company had its credit sales amount SUD 600,000 during the month of December 2016 and the average of accounts receivable during December was USD 60,000. Number of Dates: This is the number of days that we want to calculate, say, 30 days, or 90 days.In most cases, the calculation is monthly. It can be monthly, quarterly, and annually. Total Credit Sales: This is the total of credit sales during the period.However, averages of accounts receivable are mostly used to eliminate the bias as the result of carrying forward of accounts receivable from last previous period. Accounts Receivable: Accounts receivable balance at the end of the period that we want to calculate the ratio.(Accounts Receivable/ Total Credit Sales) * Number of Days This is because such measurement could let management review the trend from month to month. However, in most cases, the period that management measure is monthly. In contrast, the low ratio means the company credit policy or collection procedure works very well.ĭays Sales Outstanding could be measure depending on the management intention for example monthly, quarterly, and annually. If the ratio is high that means that the company spends more days to collect credit or accounts receivable. The company measures this ratio in order to manage the efficiency and effectiveness of credit policy as well as receivable collection procedure. Days Sales Outstanding basically refer to the average number of days that the entity takes to collect its credit sales over a period of time.

Days sales in accounts receivable formula