Course Outline
Join PRO

How do you calculate the average balance in accounts receivable?

Author:
Harold Averkamp, CPA, MBA

The average will be more representative if you include additional balances in the computation. For example, if you compute the average balance for the year 2024 by using the balances from only two days (December 31, 2023 and December 31, 2024), you are ignoring the balances on the other 364 days of 2024. That’s a problem if the majority of the company’s activity occurs in the months of March through October. If that’s the case, using only the December 31 balances will result in an average that is misleading.

To overcome the shortcoming of using only the balance at the beginning of the year and the balance at the end of the year, some accountants use 13 balances: the balance at the beginning of the year plus the balances at the end of each month. For example, the 2024 average would be calculated using the ending balance on December 31, 2023 + the ending balance on January 31, 2024 + the ending balance on February 28, 2024 and so on. Obviously, this is better than using only the two December 31 balances. Of course, you need to have access to the monthly balances.

Still better is to compute the average for the year by using the balances on each of the 365 days in the year–thereby considering fluctuations that occur within a month.

If you need a monthly average for accounts receivable, the logic is the same: 30 or 31 points of data is far better than merely using the beginning of the month balance and the end of the month balance.

View our business form for Average: 13 month.

Join PRO to Track Progress

Features

Free

PRO

Lifetime Access (One-Time Fee)
Explanations
Quizzes
Q&A
Dictionary
Bookkeeping Video Training
Financial Statements Video Training
Visual Tutorials
Quick Tests
Quick Tests with Coaching
Cheat Sheets
Flashcards
Crossword Puzzles
Word Scrambles with Coaching
Bookkeeping Study Guide
Managerial and Cost Accounting Study Guide
Certificates of Achievement
Bookkeeping Certificate of Excellence
Business Forms
Printable PDF Files
Progress Tracking
Motivational Badges and Points
Motivational Medal Rankings
Motivational Activity Streaks
Public Profile Page of Achievements

About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

Learn More About Harold

Read 3,033 Testimonials

PRO for Teams
  • Easily onboard new users and team admins
  • Monitor individual user progress and grades
  • Monitor team progress and compare users
  • View average grades and find problem areas
  • Monitor recent activity and user achievements
PRO for Teams
Take the Tour Join Pro Upgrade to Pro