Accounts Receivable Calculation Example

Accounts Receivable (AR) represents the money owed to your company by customers for goods or services delivered but not yet paid. Calculating accounts receivable helps businesses manage cash flow, track outstanding balances, and assess liquidity. This guide explains the formula, provides a practical example, and shows how to use our calculator.

What is Accounts Receivable?

Accounts Receivable is a key financial metric that tracks the money your business expects to receive from customers for goods or services provided. It represents the outstanding balances on invoices that have been issued but not yet paid.

Calculating accounts receivable helps businesses:

Assess liquidity and cash flow position
Track outstanding balances and payment terms
Identify potential revenue at risk
Evaluate collection efficiency
Plan working capital requirements

The accounts receivable balance is typically reported on the balance sheet as a current asset, reflecting the company's short-term obligations to customers.

Accounts Receivable Formula

The basic formula for calculating accounts receivable is:

Accounts Receivable = Total Sales - Cash Received

Where:

Total Sales - The total amount of goods or services sold during a period
Cash Received - The actual payments received from customers

For a more detailed calculation, you can use the average accounts receivable formula:

Average Accounts Receivable = (Beginning Accounts Receivable + Ending Accounts Receivable) / 2

This average is often used in financial statements and working capital calculations.

Accounts Receivable Example

Let's look at a practical example to understand how accounts receivable works.

Scenario

Company XYZ has the following accounts receivable data for the month of June:

Beginning accounts receivable: $5,000
Total sales for June: $50,000
Cash received from customers: $35,000
Ending accounts receivable: $10,000

Calculations

Calculate current accounts receivable:
Accounts Receivable = Total Sales - Cash Received = $50,000 - $35,000 = $15,000
Calculate average accounts receivable:
Average Accounts Receivable = (Beginning AR + Ending AR) / 2 = ($5,000 + $10,000) / 2 = $7,500

This means Company XYZ has $15,000 in accounts receivable at the end of June, with an average balance of $7,500 during the month.

How to Calculate Accounts Receivable

Calculating accounts receivable involves several steps:

Gather data - Collect sales invoices, payment records, and beginning/ending accounts receivable balances
Calculate current accounts receivable using the basic formula
Calculate average accounts receivable if needed for financial statements
Analyze the results to assess cash flow, collection efficiency, and working capital
Monitor trends over time to identify patterns and potential issues

Tip: Regularly reviewing accounts receivable helps businesses maintain healthy cash flow and identify potential collection problems early.

Accounts Receivable Table

Here's a comparison of accounts receivable for Company XYZ over three months:

Month	Beginning AR	Total Sales	Cash Received	Ending AR	Average AR
May	$4,000	$45,000	$30,000	$6,000	$5,000
June	$6,000	$50,000	$35,000	$10,000	$8,000
July	$10,000	$60,000	$45,000	$8,000	$9,000

This table shows how accounts receivable changes month-to-month based on sales and payments.

FAQ

What is the difference between accounts receivable and accounts payable?

Accounts receivable represents money owed to your company by customers, while accounts payable represents money your company owes to suppliers. Both are important for managing cash flow and financial health.

How often should I calculate accounts receivable?

Accounts receivable should be calculated regularly, typically monthly or quarterly, to track changes in outstanding balances and cash flow position.

What factors can affect accounts receivable?

Several factors can affect accounts receivable, including payment terms, customer credit policies, economic conditions, and collection efficiency.

How can I improve my accounts receivable management?

Improve accounts receivable management by implementing strict credit policies, offering flexible payment terms, using collection software, and maintaining open communication with customers.