COLLECTION PERIOD Definition

Bookmark and Share

COLLECTION PERIOD (Period End) is used to appraise accounts receivable (AR).
This ratio measures the length of time it takes to convert your average sales into cash. This measurement defines the relationship between accounts receivable and cash flow. A longer average collection period requires a higher investment in accounts receivable. A higher investment in accounts receivable means less cash is available to cover cash outflows, such as paying bills. NOTE: Comparing the two COLLECTION PERIOD ratios (Period Average and Period End) suggests the direction in which AR collections are moving, thereby giving an indication as to potential impacts to cash flow.

Learn new Accounting Terms

DIRECT EXPENSE is that portion of expense that is directly expended in providing a product or service for sale and is included in the calculation of COST OF GOODS SOLD, e.g. labor and inventory.

BUSINESS ENTERPRISE is a commercial, industrial, service, or investment entity, or a combination thereof, pursuing an economic activity.

Suggest a Term

Enter Search Term

Enter a term, then click the entry you would like to view.