![]() The total balance of his accounts receivable at the end of the same year was $20,000. David's total annual sales amount from the previous year was $200,000. Exampleĭavid owns and operates an auto supply and repair shop. Be sure to compute the average daily sales correctly using the number of days actually reflected in the sales figure (e.g., 90 should be used if a quarterly sales amount is used). ![]() However, if more recent information is available, such as the previous quarter's sales information, then use it instead. Using the annual sales amount and accounts receivable balance from the prior year is usually accurate enough for analyzing and managing your cash flow. The average daily sales volume is computed by dividing your annual sales amount by 360: Average Daily Sales = The average collection period is calculated by dividing your present accounts receivable balance by your A higher investment in accounts receivable means less cash is available to cover cash outflows, such as paying bills. A longer average collection period requires a higher investment in accounts receivable. This measurement defines the relationship between accounts receivable and your cash flow. The average collection period measures the length of time it takes to convert your average sales into cash. Measuring the Average Collection Period for Sales Receipts
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