Current Debt is typically used to fund Inventory and Accounts Receivable. However, those accounts could also...

Current Debt is typically used to fund Inventory and Accounts Receivable. However, those accounts could also be backed by Retained Earnings. Given your measures, what should be your policy towards Current Debt?

Expert Solution

Current Debt is part of the financing towards the working capital requirements of the firm. The working capital requirements of the firm refer to the difference in the current assets and current liabilities needed for day to day operational purpose like inventory purchase and payment of operating expenses. The working capital requirements can be met from the internal accruals also. The internal accruals refer to the increase in cash balance because of increase in sales and net profit margin generated.

The policy towards current debt should be

· The current debt should be used to meet the working capital requirements only

· Current debt should not be used for meeting long term requirements like fixed assets purchase or repayment of long term borrowings

· Current debt should be borrowed through a temporary measure like overdraft or short term notes payable so that it can be repaid when there is surplus cash

· Current debt should not be availed to show better ratios

ekkarill92 answered 1 year ago

Explain how the accounts receivable, inventory, power and equipment, accounts payable, wages payable and long-term debt...

Explain how the accounts receivable, inventory, power and equipment, accounts payable, wages payable and long-term debt impacted cash flow from one year to the next. 200-word minimum.

Cash $ Current liabilities $ Accounts receivable $ Long-term debt $40,000 Inventories $ Common stock $ ...

Cash $ Current liabilities $ Accounts receivable $ Long-term debt $40,000 Inventories $ Common stock $ Fixed assets $ Retained earnings $60,000 Total assets $200,000 Total liabilities and equity $ Sales $ Cost of goods sold 1. Complete the balance sheet and sales information using the following financial data: Total assets turnover: 1.1x Days sales outstanding: 38 days Inventory turnover ratio: 4x Fixed assets turnover: 2.5x Current ratio: 2.5x Gross profit margin on sales: (Sales - Cost of goods sold)/Sales...

1 Accounts receivable is classified as a tangible fixed asset 2) Accounts receivable is a current...

1 ______ Accounts receivable is classified as a tangible fixed asset 2) ______ Accounts receivable is a current asset 3. _____ Amount due from a customer that is past due is a current liability 4_________ Accounts Receivable is one of the accounts that is the most liquid 5__________ Any asset that can be sold is considered liquid. 6. ________ As the degree of financial leverage increases, the probability a firm will encounter financial distress increases 7.___________ The book value of a firm is equivalent to the...

Current liabilities include: A. Accounts receivable B. Unearned revenues. C. Portion of long-term debt that will...

Current liabilities include: A. Accounts receivable B. Unearned revenues. C. Portion of long-term debt that will be paid with noncurrent assets D. All of these E. None of these.

Accounts Receivable The following table indicates the historical breakout of accounts receivable Days Current 30 to...

Accounts Receivable The following table indicates the historical breakout of accounts receivable Days Current 30 to 60 60 to 90 Over 90 Percent of Balance 50% 30% 15% 5% Percent Collectible 95% 90% 80% 60% The company uses the gross method of recording all sales on accounts. Marketable Securities The interest rate earned on marketable securities is 6.0%. Inventory In 20x2, the company had used the gross method to record inventory purchases on account. As of January 1, 20x3, the...

Spartan Sportswear's current assets consist of cash, short-terminvestments, accounts receivable, and inventory. The following data...

Spartan Sportswear's current assets consist of cash, short-term investments, accounts receivable, and inventory. The following data were abstracted from a recent financial statement:Inventory$270,000Total assets$720,000Current ratio2.85Acid-test ratio1.35Debt to equity ratio1.25Required:Compute the shareholders' equity for Spartan:

COMPUTE AND ANALYZE THE LIQUIDITY RATIOS: CURRENT RATIO, ACCOUNTS RECEIVABLE TURNOVER, INVENTORY TURNOVER. EXPLAIN HOW THEY...

COMPUTE AND ANALYZE THE LIQUIDITY RATIOS: CURRENT RATIO, ACCOUNTS RECEIVABLE TURNOVER, INVENTORY TURNOVER. EXPLAIN HOW THEY AFFECT INVERSTORS' OR CREDITORS' DECISIONS REGARDING THE COMPANY.

how do you monitor inventory and accounts receivable?

Spartan Sportswear's current assets consist of cash, short-term investments, accounts receivable, and inventory. The following data...

Spartan Sportswear's current assets consist of cash, short-term investments, accounts receivable, and inventory. The following data were abstracted from a recent financial statement: Inventory $ 310,000 Total assets $ 810,000 Current ratio 3.80 Acid-test ratio 1.80 Debt to equity ratio 1.70 Required: Compute the shareholders' equity for Spartan:

Cash $ 298 $ 306 Accounts receivable 3,006 3,422 Inventory 5,210 5,650 Total Current Assets (calculate)...

Cash $ 298 $ 306 Accounts receivable 3,006 3,422 Inventory 5,210 5,650 Total Current Assets (calculate) Net fixed assets 32,780 36,400 Total Assets $ 41,294 $ 45,778 Need help with calculating total current assets. Please help me by explaining it trying to learn!

Question