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I have this question not for exam but due to a task I was required to complete at work this week. I was asked by FD to calculate the DSO (or accounts receivables days) month by month for the whole 2013 to see the trend and to continue these calculations in 2014.
I used formula:
AR Balances outstanding at month-end / Total Credit Sales for the month * N of days in the month =DSO
(we only sell on credit)My question is about Sales figure in this formula. Should it be Gross Sales including VAT or should it be Net Sales excluding VAT (but including freight)?
If I should take Sales excluding VAT, then why?
I was thinking that if AR balances include VAT in them then why sales should be taken excluding VAT? Should not they be like with like? Both include VAT?- Topics: 1
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Is there a reason or explaination, please?
So that you are comparing like with like.
The receivables will include VAT and so it would be sensible for the sales figure used to include VAT as well.
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Thank you
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