Average Accounts Receivable

Average accounts receivable, abbreviated as AAR, is the average amount of money owed to a company by its customers over a certain period, typically a fiscal year.  It is calculated by adding the accounts receivable at the beginning of the period to the accounts receivable at the end of the period and then dividing by two.

This is often used by analysts, investors, and managers to assess the efficiency of a company's credit and collection policies.  It can also provide insights into the company's liquidity, cash flow, and overall financial health.  A lower average accounts receivable relative to sales may indicate efficient credit policies and effective collection procedures, while a higher average may suggest potential issues with collections or credit management.

 

average accounts receivable Formula

\( AAR =  OB + CB \;/\; 2  \)

Symbol

\( AAR \) = average accounts receivable

\( OB \) = opening balance

\( CB \) = closing balance