Average Accounts Receivable

Definition: Average Accounts Receivable is the simple arithmetic average of beginning and ending Accounts Receivable for a reporting period: (Beginning AR + En…

Average Accounts Receivable is the simple arithmetic average of beginning and ending Accounts Receivable for a reporting period: (Beginning AR + Ending AR) / 2. It is used as the denominator of the Receivables Turnover ratio (Net Credit Sales / Average AR) and indirectly in Days Sales Outstanding (DSO). Averaging is preferred so that net credit sales — a flow over the period — is matched against an averaged receivables balance rather than a single year-end figure that may not be representative.