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Answer: The accounts receivable turnover is computed using the formula below: Net credit sales divided by Average accounts receivable

Explanation: The accounts receivable turnover ratio is a measure used to quantify a company's effectiveness in managing its receivables collections or amount owed by clients. The following steps are involved in calculating the accounts receivables turnover:

  • Get the accounts receivable at the beginning and end of the desired periods and divide by 2 to get the average, which is the denominator in the formula above.
  • Then get the net credit sales, which is the total sales revenue done on credit to customers, after backing out customers' returns

High accounts receivable turnover ratio means the company's collection process is highly effective while the low ratio signifies the opposite.

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