Working capital assets are comprised of cash, accounts receivables, and inventory. Is one more important to...

Working capital assets are comprised of cash, accounts receivables, and inventory. Is one more important to manage than another? Why? Why not? Which of these are the most difficult to manage?

How does the accounting basis (cash vs. accrual) an organization chooses change your response, especially in regards to accounts receivables?

Expert Solution

The most important factor of working capital is Accounts receivables than Inventory and Cash because Accounts receivables is something money that you company will recieved from customers and it is easy to sell but its real efforts to convert the accounts rec. into cash as many customers does not pay on time which ultimately required company to maintain its working capital through other funds like managing AP, Inventory and cash position. Inventory and cash can be controlled internally however A/R is based on external customer behaivour so difficult to managed.

In accural basis accounting above example still vaild however for cash basis accounting a transaction is only recorded in books as and when cash is received and expenses when cash is paid, so there is no A/R balance lying , the important factor than is inventory to manage and ensure the working capital requirement is meet without using outside funds.

ekkarill92 answered 2 years ago

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