Accounts Receivables or A/R = someone owes you money
Example: If you have a $500 sale purchased on credit, your A/R = $500. If they don’t pay, you must write off the debt to the provision for loan losses account.
A/R Net = Accounts Receivables – Provision for loan losses
Another concept to know is Receivables Turnover. Receivables Turnover = how often (or how fast) the customer is paying during this period (typically a year).
Receivables Turnover = (Total of all credit sales) / (A/R).
Example: $10,000 / $1,000 = 10 times
So, if your annual sales = $10,000 and A/R turnover = 10 times during the year = Your average A/R balance = $1000
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