The accounts receivable formula
Ending accounts receivable equals beginning accounts receivable, plus credit sales, minus cash collected from customers, minus write-offs. If you know days sales outstanding, accounts receivable is about DSO times credit sales divided by the number of days in the period. Net accounts receivable equals gross accounts receivable minus the allowance for doubtful accounts. Those three sentences are accounting identities. The dollars later on this page are illustrative. They are not a real company, and they are not a result this desk observed.
Accounts receivable is the balance customers still owe for sales made on credit. This page is about how to calculate that balance. It does not repeat the definition article.
Ending accounts receivable
Ending AR = beginning AR + credit sales − collections − write-offs. Credit sales are the revenue billed to customers rather than collected at the register. Collections are the cash those customers paid during the period. Write-offs remove amounts the business no longer expects to collect. Each of those four inputs has to be for the same period, or the ending balance will not roll forward.
Do not calculate the balance from revenue alone. The income statement mixes cash sales and credit sales unless the business separates them, and only the credit-sales portion belongs in the roll-forward. A cash sale never becomes a receivable. A customer who pays in the same period still creates a receivable for a moment, and the collection nets it out. That is why the formula needs four lines, not one revenue number. An example on a spreadsheet is still an example until those four lines come from the business's own ledger. Keep the period the same on every line of the roll-forward.
Worked example
The numbers in this table are illustrative. They exist so the formula can be checked with a calculator. They are not taken from a filing.
| Line | Amount |
|---|---|
| Beginning accounts receivable | $100,000 |
| Credit sales (revenue billed to customers) | $50,000 |
| Cash collected from customers | $40,000 |
| Write-offs | $2,000 |
| Ending accounts receivable | $108,000 |
100,000 + 50,000 − 40,000 − 2,000 = 108,000. The invoice that created the credit sale is what put the $50,000 into receivables. The cash receipt is what took $40,000 back out. The write-off removed $2,000 the business stopped expecting. The same identity is the journal-entry story on the accounts receivable write-off page.
How to calculate accounts receivable from DSO
Days sales outstanding, or DSO, is the average number of days credit sales sit in receivables. Rearranged, accounts receivable is approximately DSO times credit sales divided by the number of days in the period.
AR = DSO × credit sales ÷ days
Using illustrative inputs only: DSO of 40 days, credit sales of $90,000, and a 30-day period. AR ≈ 40 × 90,000 ÷ 30 = $120,000. Change the day count and the result changes, so the period in the denominator has to match the sales in the numerator. The definition of the ratio is days sales outstanding. This rearrangement does not create a new measurement. It restates DSO.
Average accounts receivable
Average accounts receivable smooths a single ending balance. The plain average of two points is (beginning AR + ending AR) ÷ 2.
(Beginning + ending) ÷ 2
Using the illustrative roll-forward above, beginning $100,000 and ending $108,000, the average is (100,000 + 108,000) ÷ 2 = $104,000. A two-point average ignores the balances in the middle of the period. Where that matters for data integrity is covered in calculating average receivables.
Net accounts receivable
Net accounts receivable is what remains after the business subtracts the amounts it expects not to collect.
Gross AR minus the allowance
Net AR = gross AR − allowance for doubtful accounts. Illustrative only: gross ending AR of $108,000 and an allowance of $5,000 produces net AR of $103,000. The allowance is an estimate, not a write-off. The write-off happens later, against the allowance, and it does not change net AR by itself under the allowance method. See the provision for credit losses and the write-off journal entry.
Accounts receivable turnover and AR days
Turnover asks how many times the receivable balance was collected during the period. AR days asks how many days of sales that balance represents. Both use the average balance from the section above.
Turnover = net credit sales ÷ average AR
Illustrative: net credit sales of $90,000 divided by average AR of $104,000 is about 0.87. The definition is the accounts receivable turnover ratio. A turnover below 1 in a short period is not a verdict. It means the formula was applied to that period's sales, not to a full year, unless the sales figure is annual.
Days = days in the period ÷ turnover
If the turnover above is paired with a 365-day year, AR days ≈ 365 ÷ 0.87 ≈ 420. That result is illustrative and it is large because the sales figure was not a full year of sales. Match the day count to the sales period. A 30-day period with turnover of 0.87 would be 30 ÷ 0.87 ≈ 34 days. The longer explanation of the collection period is the collection-period formula. An aging report, which is a different cut of the same balance, is the receivables aging report. The cash side of the same loop is the cash conversion cycle.
Where to find accounts receivable on the statements
Accounts receivable is a balance-sheet asset. It is not a line of profit. Credit sales flow through revenue on the income statement. The change in accounts receivable shows up in operating cash flow, because cash collected is not the same number as revenue billed.
The change in accounts receivable
Change in AR = ending AR − beginning AR. In the illustrative roll-forward, 108,000 − 100,000 = an increase of $8,000. An increase means customers owe more than they did at the start, so cash collections were smaller than credit sales after write-offs. A decrease means the opposite. You cannot calculate the receivable balance from the income statement alone. Revenue is there. The beginning balance, the collections, and the write-offs are not.
Calculate accounts receivable in Excel
Put the illustrative inputs in a column and let the cells do the arithmetic. Labels in column A, amounts in column B.
- B2, beginning AR: 100000
- B3, credit sales: 50000
- B4, cash collected: 40000
- B5, write-offs: 2000
- Ending AR in B6:
=B2+B3-B4-B5 - Average AR in B7:
=(B2+B6)/2 - Allowance in B8: 5000
- Net AR in B9:
=B6-B8 - DSO in B11: 40. Credit sales for the DSO formula in B12: 90000. Days in B13: 30.
- AR from DSO in B14:
=B11*B12/B13 - Turnover in B15, using the DSO sales figure and the average:
=B12/B7 - AR days in B16, using the same day count:
=B13/B15
Those formulas reproduce the illustrative example. Replace the inputs with the business's own beginning balance, credit sales, collections, and write-offs before anyone uses the sheet. More of the same questions, in short form, are on the accounts receivable questions page and the receivables and credit hub.
FAQ
What is the formula for accounts receivable?
Ending accounts receivable = beginning accounts receivable + credit sales − collections − write-offs.
How do you calculate accounts receivable from DSO?
Accounts receivable ≈ DSO × credit sales ÷ the number of days in the period.
How do you calculate average accounts receivable?
(Beginning accounts receivable + ending accounts receivable) ÷ 2.
What is net accounts receivable?
Gross accounts receivable minus the allowance for doubtful accounts.
Is accounts receivable on the income statement?
No. Accounts receivable is a balance-sheet asset. Credit sales flow through revenue, and the change in accounts receivable shows in operating cash flow.
Sources
The formulas on this page are accounting identities, not a statute. The dollar amounts are illustrative and are labelled as such in the worked example. No external statistical source is cited because none is used.
Related guides
FCRA, TCPA, FDCPA, credit cycle, write-off entries, the ARM industry.
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