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