How to Calculate Days Sales Outstanding

To calculate Days Sales Outstanding (DSO), first determine the average accounts receivable by adding the beginning and ending balances of accounts receivable and dividing by two. Next, divide this average accounts receivable by total credit sales over a specific period (e.g., monthly or annually) and multiply by the number of days in that period (e.g., 30 days for a month or 365 days for a year). The resulting figure represents the average number of days it takes for a company to collect payments from its credit sales, providing insights into its efficiency in managing receivables and cash flow.

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