Accounts Receivable Collection Period

Definition: Accounts Receivable Collection Period (also known as Days in Receivables) shows the average number of days it takes to collect all accounts receivable.

Formula:
Accounts Receivable Collection Period = (Average Accounts Receivable / Net Credit Sales) * 365 Days
Or,
Days in Receivables = 365 Days / Accounts Receivable Turnover

Example:
The following information relates to XYZ Company for the year ended 31 December 2009:
Total sales (include cash sales $800): $8,000
Sales returns: $200
Purchases returns: $885
Accounts Receivable at start of the year: $5,000
Accounts Receivable at end of the year: $6,000

Solution:
Net Credit Sales = Total sales - Cash sales - Sales returns = 8,000 - 800 - 200 = $7,000
Average Accounts Receivable = (5,000 + 6,000) / 2 = $5,500
Days in Receivables = (5,500 / 7,000) * 365 = 287 days

* Next: Accounts Receivable Turnover Ratio Analysis
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