equation of Debter velocity and Debters turnover ratio
Answer (1)
13th Nov, 2019
Dear aspirant,
Debtors Velocity(a.k.a Debtors days) is
365/Debtors turnover ratio
where debtors turnover ratio=Total Credit Sales/Average recievables
It shows the speed with which collections are made from debtors in other words the days of creditt allowed to debtors to make payment.
Credit sales should be taken and in absence of information relating to Credit and cash sales the total sales mentioned in a problem can be taken as the numerator.
Avg recievables=(op debtors and BR+cl debtors and BR)/2
Some text books assume the no. of days in a year as 360 instaed of 365 and take formula as: 360/Debtors turnover ratio
Hope this helps you out!
All the best
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