What is the formula for Sales/Receivables?

• A. Net Sales / AR
• B. Represents # of times Receivables turn in a year
• C. Bigger is better
• D. Lower is better

Answer: (A)

Net Sales divided by Accounts Receivable is the formula for the receivables turnover. It shows how many times receivables are collected into cash during the period, essentially how quickly you turn sales into cash. Using net sales (or net credit sales) over average accounts receivable gives a turnover per year—the higher the result, the faster the collections and the more efficient the receivables management. The other statements describe what the ratio represents or how to interpret it, rather than the calculation itself.