What is Average Net Receivables?

Average net receivables is the multi-period average of accounts receivable ending balances, netted against the average allowance for doubtful accounts for the same periods. The concept is used in a number of liquidity ratios (especially the accounts receivable turnover ratio). It is intended to smooth out any unusual spikes or drops in the ending receivables balance in the current period. The result is more consistent trend lines in the outcomes of reported ratios.

How to Calculate Average Net Receivables

To calculate average net receivables, add together the net receivables for the current period and the immediately preceding period, and then divide the sum by two. The formula is:

(Net receivables for current period + Net receivables for preceding period) ÷ 2 = Average net receivables

Example of Average Net Receivables

As an example of average net receivables, a company has the following receivables data:

Beginning of the Year Net Receivables: $50,000
End of the Year Net Receivables: $70,000

The average of these beginning and ending balances is $60,000, meaning that the company’s average collectible credit sales balance over the period was $60,000 after accounting for allowances for doubtful accounts.