In deciding whether an increase in accounts receivable during the current year is desirable or undesirable,...

In deciding whether an increase in accounts receivable during the current year is desirable or undesirable, what factors should management consider

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There are lots of factors that management should consider in deciding whether increase in accounts receivables is desirable or not. Some factor are as under:

1. If accounts receivables is increased due to increase in credit sales as compared to previous year sales, but collection period from accounts receivables is reduced, then such increase in accounts receivables may be considered desirable by management. In this situation percentage increase in accounts receivables will be lower than percentage increase in credit sales.

2. If company is having unfavorable quick ratio and to improve quick ratio, credit sale is made then such increase in accounts receivables may be considered desirable as will result in improved current and quick ratio.

3. If company's profits is not upto bechmark for current year then in order to increase profitability, credit sales is made and increase in accounts receivables due to such credit sales may be considered desirable by management.

ekkarill92 answered 1 year ago

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