Receivable Turnover is calculated as net sales divided by what?

• A. Net Sales / Average Accounts Receivable
• B. Net Income / Average Accounts Receivable
• C. Average Accounts Receivable / Net Sales
• D. Net Sales / Ending Accounts Receivable

Answer: (A)

Receivable turnover gauges how efficiently a company collects its credit sales. It is calculated as net sales divided by the average accounts receivable for the period. Using the average accounts receivable (typically (beginning AR + ending AR) / 2) smooths out fluctuations that can occur within the period, giving a true sense of the collection speed over time. Net sales is used rather than net income because this ratio focuses on cash collections from customers, not on overall profitability. Using ending accounts receivable would distort the picture at period end, since it doesn’t reflect the whole period’s results.

Example: if net sales are 600,000 and average AR is 75,000, the turnover is 8 times, indicating receivables are collected about eight times per year (roughly 365/8 ≈ 46 days on average to collect). Higher turnover means faster collection.