Analysing accounts receivable

By liuxiaoxin1115 | Updated: Oct. 2, 2018, 6:36 a.m.

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Analysing accounts receivable
Analysing accounts receivable  
receivable represents a company's claim on the assets of another entity
account receivable is an amount owed by a customer who purchased the company's product or service
Because a receivable is an uncollected sale
Analyzing account receivables will provide a better understanding of how well a company managing its business. 
1
horizontal and vertical analysis
2
receivable turnover ratio
3
allowance ratio
Horizontal analysis
analyze a company’s account balances over time
calculating absolute and percentage change is each account. The dollar change in an account is calculated by the current year balance less prior year balance. The percentage change in account balance is calculated by a dollar change divided by prior year balance.
vertical analysis
vertical analysis is carrying out by dividing each account balance by a base account to yield a percentage. The base account is total assets in balance sheet and net sales or total revenues for income statement.
The second method
Receivables turnover ratio
It is calculated by dividing credit sale into its average receivables. The average receivables are beginning receivables plus ending receivables divides by 2.

This ratio indicates how many times a company generates and collects receivables during a certain period.

BUT！
sometimes receivable turnover ratio is not straight forward enough to be comprehended. So, it can be converted into the days-in-receivables ratio
The days-in-receivables ratio divides the receivables turnover ratio into 365 days to express, in days, how long it takes a company to generate and collect its receivables.
The third methods
Allowance ratios
It calculated by dividing allowance for doubtful by debts gross receivables, where gross account receivable is net account receivables plus allowance for doubtful debts.
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Analysing accounts receivable

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