Question

From the perspective of a financial manager, briefly explain why the growth of the asset accounts receivable can be perceived as a desirable event and then explain why the growth of accounts receivable may be undesirable.

Answer 1

The growth of the asset accounts receivable can be perceived as a desirable event because it indicates that Sales Revenue of a company is increasing. The demand of product of Company is increasing and company is growing day by day. As a Financial Manager, it means that the policies and strategies of company is in the right direction for which it was framed. It also indicates that company's credit worthiness is positive and its financial abilities is bettter.

As far as the growth of accounts receivable may also be an undesirable event because it results in blocking of working capital of company. Company is selling products on credit basis and may not be recovering its money from Debtors on time. Long term dues from Accounts Receivable might be result into non recovery of money. This is the possibility that a company may face.

Every thing has two sides, one is Good and the second is Bad. This is true in most of the cases. Likewise as explained above, the growth of asset accounts receivable can be perceived as a desirable event and can be undesirable as well.