Receivables Turnover = Net Credit Sales / Average Accounts Receivable
How do you know what is a product sold on credit rather than sold for cash in the accounts?
Am I safe to use revenue or sales as a proxy for net credit sales? Or should I be looking elsewhere in the accounts?
Also, part 2:
If when calculating ratios, average = beginning - end
If B<E, then you will end up with a negative number which will impact the ratio?
Does it always have to be B-E, or can you do E-B?
Thank you very much!
On the exam, they’ll tell you.
Um . . . no, it doesn’t.
Average = \frac{Beginning + Ending}{2}
You know: the average.
- What about in real life? Am I mistaken in thinking that companies don’t report ‘net credit sales’ in their accounts?
Otherwise, thank you for the reply.
Different companies have different accounts. Some might have only Sales, while others have Cash Sales and Credit Sales.
If they don’t separate out credit sales as an account, then you’d have to go through the journal entries to find all of the debits to Accounts Receivable.