 Day sales and receivable is a very important ratio because it tells us how many days on average it takes to collect from our customers. It's really a variant of a count receivable turnover ratio, although more widely used than AR turnover ratio. It also has a few other common names like day sales outstanding or DSO or average collection period or ACP. Day sales and receivable is a measure of efficiency. The formula is to calculate day sales and receivable has two parts. Often students stop after the first part. Please don't do that. The first part is net sales revenue divided by 365 days if you are calculating this using an annual data. This gives us the average one-days sale. The second part is taking the average net accounts receivable and dividing it by the average one-day sales that was calculated in part one. This gives us the days, sales and receivable. Here is an income statement from a sample company of highlighted net sales revenue. We're going to use that information to determine the average one-day sales. Additionally, we need some information from the current asset section of the balance sheet. I've highlighted two years worth of net accounts receivable balances. For 2016, part one gives us an average day sales of $275.53. In part two, we divide the net AR by the one-day sales to get 3.3 days. On average, we collect our accounts receivable every 3.3 days, which is a little too good to be true. This is probably a business that has a lot of cash sales rather than sales on account. Regardless, we would look to compare the results to our credit terms, let's say 30 days, and see if the company is doing better or worse at collecting than terms.