The study guide in Section 2.1 is a little confusing regarding how to calculate Aged accounts receivable. I don’t understand how the result is 36.5 days. Please clarify.
@peaceloveshakti The formula presented in the lecture video Firm Financials: Profit-Lost Statement is:
Aged Accounts Receivable = Average Annual Accounts Receivable / [Net Operating Revenue / 365 ]
The example figures plugged in are $150,000 / [$1,500,000 / 365] = 36.5 days.
Average Annual Accounts Receivable is found in the assets section of the Balance Sheet, while NOR is found in the Profit-Loss Statement.
Check out The Architect’s Handbook of Professional Practice, page 418 for more about this metric.
Hope this helps!
Kiara Galicinao, AIA, NCARB
Product Coordinator
Black Spectacles
Hi, can you clarify if the Balance Sheet shows the Average Annual Accounts Receivable or just the outstanding Accounts Receivable at the moment at which the Balance Sheet is extracted? If it is an average, are other line items in the Balance Sheet, such as Accounts Payable, also averaged in the same way? This seems inconsistent to me with the idea of providing a current snapshot of the firm’s current financial state if line items reflect an average over a time period. Let me know if I am understanding this properly. Thanks!
@mlb082600 The Balance Sheet provides a snapshot at the given point in time and this applies to all figures in the document - it does not represent averages.
However, when we calculate Aged Accounts Receivable, the formula uses Average Annual Accounts Receivable, which is derived from Balance Sheet data, not taken directly from one Balance Sheet (i.e. by averaging two or more Balance Sheet figures).
Hope this helps!
Kiara Galicinao, AIA, NCARB
Product Coordinator
Black Spectacles