Ratios: Accounts Receivable (AR) Turnover definitions Flashcards
Ratios: Accounts Receivable (AR) Turnover definitions
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Accounts Receivable Turnover Ratio Efficiency metric showing how often average receivables are converted into net credit sales during a period. Net Credit Sales Total sales made on credit minus returns and allowances, used as the numerator in turnover calculations. Average Accounts Receivable Mean value of receivables, calculated by adding beginning and ending balances and dividing by two. Credit Policy Company guidelines determining terms and conditions for extending credit to customers. Benchmarking Process of comparing a company's ratio to industry averages or competitors to assess performance. Efficiency Ratio Financial metric evaluating how effectively a company manages assets or operations, such as receivables. Credit Terms Conditions under which customers are allowed to purchase goods or services on account. Sales Revenue Total income from goods or services sold, sometimes used in place of net credit sales if specifics are unavailable. Industry Average Standardized value representing typical performance within a specific sector, used for comparison. Abnormally High Turnover Situation where receivables are collected very quickly, possibly indicating overly strict credit policies. Receivables Collection Process of obtaining payment from customers for credit sales previously made. Beginning Balance Amount of accounts receivable at the start of an accounting period, used in average calculations. Ending Balance Amount of accounts receivable at the close of an accounting period, used in average calculations. Competitor Comparison Assessment of a company's financial ratios against those of similar businesses to gauge relative performance. Credit Extension Practice of allowing customers to purchase now and pay later, creating accounts receivable.
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