Definition:

Gross Accounts Receivable refers to the total amount of money owed to a company by its customers for goods or services delivered or used but not yet paid for, before any allowances for doubtful accounts or bad debts are deducted.

Examples

1. A retail company sells products on credit to various customers. The total amount billed to these customers, yet to be collected, is recorded as Gross Accounts Receivable.
2. A consulting firm provides services to a client and issues an invoice. The invoice amount, pending payment, is part of the firm's Gross Accounts Receivable.

Formula:

Gross Accounts Receivable = Total Credit Sales - Cash Received from Credit Sales

How to use the metric:

Gross Accounts Receivable is used to assess the liquidity and credit management efficiency of a business. It helps in understanding how much of the company's sales are tied up in credit and how effectively the company is managing its credit policies.

Limitations:

1. It does not account for the likelihood of non-payment, as it includes all receivables without considering bad debts.
2. High Gross Accounts Receivable may indicate potential cash flow issues if not managed properly.
3. It does not provide insights into the aging of receivables, which is crucial for understanding collection efficiency.

Applies to:

Gross Accounts Receivable is applicable to industries where sales are commonly made on credit, such as retail, manufacturing, and service industries.

Doesn't apply to:

Industries that primarily operate on a cash basis, such as small local businesses or certain sectors of the hospitality industry, may not find this metric as relevant, as they do not typically extend credit to customers.

Summary:

Gross Accounts Receivable is a key financial metric that represents the total outstanding credit sales of a company. It is crucial for evaluating a company's credit sales performance and liquidity but must be analyzed alongside other metrics to account for potential bad debts and collection efficiency.