The computation of the receivables turnover ratio = net credit sales divided by average accounts receivable.
The receivables turnover ratio measures the efficiency of collections with respect to credit transactions.
The net credit sales = the difference between total sales revenue and sales returns and allowances.
The average accounts receivable = (the beginning accounts receivable plus the ending accounts receivable for the period) divided by 2.
Thus, the accounts receivable turnover ratio is an important financial performance measure for checking the efficiency of the credit policy.
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