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Sir you said in your lecture on management of working capital that to calculate the receviable days we have to calculate the formula which is:
(Average receivables / credit sales) x 100
I don’t understand what is meant by average here to we have to divide it by 2 to get the average of receivables? But you didn’t do that in your lecture can I ask why don’t you take the average when the formula do so?
If we have the information then to get the average receivables we add together the receivables at the start and end of the year and divide the total by two.
However most times we do not have that information – either we are only told the receivables at the end of the year, or if we are comparing two years then we do not have the opening and closing receivable for both years. If we do not have the information then we have no choice but to just use the year end receivables.