Spectro Technologies wants to find the average DSO for last year. At the beginning of the year, the company had $490,000 in accounts receivable. At the end of the year, it had $375,000 in accounts receivable. Let’s plug those numbers into the average accounts receivable formula.
$432,000 = ($490,000 + $375,000) / 2
Spectro Technologies had an average accounts receivable of $432,000. Over that same period, the company brought in $6,200,000 in annual sales. We can now plug these numbers into the DSO formula and round to the nearest whole number.
25 = ($432,000 / $6,200,000) * 365
Now we can see the average amount of time Spectro Technologies took to collect payment was 25 days. That means the company’s accounts receivable is in good shape.