Acca financial Accounting (FA) Study Text ac ca (FA)

Receivables days 

 

The trade receivables used may be a year-end figure or the average for 

the year. Where an average is used to calculate the number of days, the 

ratio is the average number of days’ credit taken by customers. 

For many businesses total sales revenue can safely be used, because 

cash sales will be insignificant. But cash-based businesses like 

supermarkets make the substantial majority of their sales for cash, so the 

receivables period should be calculated by reference to credit sales only. 

The result should be compared with the stated credit policy. A period of 

30 days or ‘at the end of the month following delivery’ are common credit 

terms. 

The receivables days ratio can be distorted by: 

•

 

using year-end figures which do not represent average receivables 

•

 

factoring of accounts receivables which results in very low trade 

receivables 

•

 

sales on unusually long credit terms to some customers. 

 

 

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