Accounta Recivable Calculation

Accounts receivable (AR) represents money owed to a company by its customers for goods or services delivered but not yet paid for. Calculating accounts receivable helps businesses track their cash flow, manage working capital, and assess financial health. This guide explains how to calculate accounts receivable, including the formula, examples, and practical applications.

What is Accounts Receivable?

Accounts receivable is a key metric in financial accounting that tracks the money a company expects to receive from customers for goods or services provided. It's part of the company's assets and is recorded when sales are made but payment hasn't been received yet.

Tracking accounts receivable helps businesses:

Monitor cash flow and liquidity
Assess collection efficiency
Manage working capital
Identify potential bad debts
Plan for future revenue

Accounts receivable is different from accounts payable, which tracks money a company owes to suppliers.

How to Calculate Accounts Receivable

Calculating accounts receivable involves understanding the total amount of money owed to your company by customers. The basic calculation involves tracking unpaid invoices and adjusting for discounts, bad debts, and other factors.

The most common method is to sum all unpaid invoices and subtract any expected discounts or write-offs. Some businesses also calculate accounts receivable as a percentage of sales or revenue.

Accounts Receivable Formula

The standard formula for calculating accounts receivable is:

Accounts Receivable = Total Sales - Cash Received

Where:

Total Sales = Total amount of goods or services sold
Cash Received = Total amount of payments received from customers

For a more detailed calculation, you can use:

Accounts Receivable = (Average Daily Sales × Average Collection Period) - Cash Received

Where:

Average Daily Sales = Total sales divided by number of days in period
Average Collection Period = Average number of days it takes to collect payments

Accounts Receivable Example

Let's calculate accounts receivable for a company with the following data:

Total sales for the month: $50,000
Cash received from customers: $35,000

Using the basic formula:

Accounts Receivable = $50,000 - $35,000 = $15,000

This means the company has $15,000 worth of unpaid invoices.

Accounts Receivable Table

Here's a sample accounts receivable table showing the calculation over a 30-day period:

Day	Sales	Payments Received	Accounts Receivable
1	$1,000	$500	$500
2	$1,200	$600	$1,100
3	$900	$450	$1,550
4	$1,500	$750	$2,300
5	$1,100	$550	$2,850

Accounts Receivable FAQ

What is the difference between accounts receivable and accounts payable?

Accounts receivable is money owed to your company by customers, while accounts payable is money your company owes to suppliers.

How often should I calculate accounts receivable?

Accounts receivable should be calculated regularly, at least monthly, to monitor cash flow and collection efficiency.

What factors can affect accounts receivable?

Factors include payment terms, credit policies, economic conditions, and industry trends.

How can I improve my accounts receivable collection?

Improve collection by offering flexible payment terms, following up on overdue invoices, and using credit scoring.