Business transactions are not always facilitated through cash sales. Companies often rely on issuing credit to customers in order to sell their product(s). Therefore, the term "credit sales" can easily be defined as sales in which cash is not rendered at the time of purchase, resulting in an accounts receivable for a company. Therefore, annual credit sales are the total invoiced receivables for a 12-month period reported.
Once calculated, the amount of annual credit sales is listed in the Revenue portion of an Income Statement. By following this guide, you will learn how companies calculate Annual Credit Sales.
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First, total all your invoices throughout a 12 month period from all sources to determine your total gross sales, including cash and credit sales.
Deduct the cash sales received throughout a 12 month period from the total gross sales amount.
Examine the remaining money owed to a company throughout the specified time period. It should match the total of all credit sale invoices for the 12 month period and illustrates the annual credit sales.
Transfer the calculated Annual Credit Sales amount to the Revenue section of an Income Statement.
Tips and warnings
- Annual Credit Sales is used to compute the Accounts Receivables Turnover ratio, which demonstrates the effectiveness of a company to extend credit to customers and collect payments from its debtors.
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