Accounts receivable is equal to the interest free financing provided by the company to customers. Excessive accounts receivable will bring heavy burden to the company's capital.
Collection date: 1. Based on the annual sales revenue
2. The average value of accounts receivable at the beginning and the end (the concept of average value)
DSO - accounts receivable at the end of the period are mainly generated by the recent sales. Therefore, the balance of accounts receivable is deducted from the monthly sales amount month by month. When there is little difference between the business's revenue in the light and peak seasons, the calculation results of the two methods should be very close.
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