Question

In: Finance

What happens to a firms liquidity when the accounts receivable is collected?

What happens to a firms liquidity when the accounts receivable is collected?


When a supplier's bill is paid and net working capital is positive what happens to the current ratio?

Solutions

Expert Solution

First one, when a firm receives the collection, the firm's liquidity will increase. Because firms have more cash in hand to payout the liabilities quickly.

Second one,

When the supplier's bill is paid, the current ratio will increase provided net working capital is positive, let's understand with For example, suppose u have 100000 current assets and 50000 current liabilities which means your current ratio is 2:1. Now you pay the bill of one of the suppliers worth 25000 so the new current asset = 75000

New current liabilities will = 25000

New current ratio = 75000/25000 = 3:1


Related Solutions

What is the difference between Accounts Receivable and the Allowance for Doubtful Accounts and when the...
What is the difference between Accounts Receivable and the Allowance for Doubtful Accounts and when the relationship can be considered reasonable
What is accounts receivable? What is notes receivable and how are they different than accounts receivable?...
What is accounts receivable? What is notes receivable and how are they different than accounts receivable? How do creditors decide to extend credit to their customers? What processes do credit managers use to evaluate new customers? Now explain the allowance for doubtful accounts and provide examples.
1. In the traditional liquidity trap, what happens when the government engeages in open market operation?...
1. In the traditional liquidity trap, what happens when the government engeages in open market operation? 2. Now suppose money(reserves) are considered less liquid than bonds, what happens?
What is The Importance Of Analyzing Accounts Receivable. Accounts Receivable Financing : An alternative to bank...
What is The Importance Of Analyzing Accounts Receivable. Accounts Receivable Financing : An alternative to bank financing for your small business DISCUSS THE ABOVE STATEMENT BY TAKING EXAMPLE OF BUSINESS ORGANIZATION OF YOUR CHOICE.
What is The Importance Of Analyzing Accounts Receivable. Accounts Receivable Financing : An alternative to bank...
What is The Importance Of Analyzing Accounts Receivable. Accounts Receivable Financing : An alternative to bank financing for your small business DISCUSS THE ABOVE STATEMENT BY TAKING EXAMPLE OF BUSINESS ORGANIZATION OF YOUR CHOICE. * reference only MC GRAW
What is The Importance Of Analyzing Accounts Receivable. Accounts Receivable Financing : An alternative to bank...
What is The Importance Of Analyzing Accounts Receivable. Accounts Receivable Financing : An alternative to bank financing for your small business DISCUSS THE ABOVE STATEMENT BY TAKING EXAMPLE OF BUSINESS ORGANIZATION OF YOUR CHOICE. answer in 2 pages
What is The Importance Of Analyzing Accounts Receivable. Accounts Receivable Financing : An alternative to bank...
What is The Importance Of Analyzing Accounts Receivable. Accounts Receivable Financing : An alternative to bank financing for your small business DISCUSS THE ABOVE STATEMENT BY TAKING EXAMPLE OF BUSINESS ORGANIZATION OF YOUR CHOICE.
What is The Importance Of Analyzing Accounts Receivable. Accounts Receivable Financing : An alternative to bank...
What is The Importance Of Analyzing Accounts Receivable. Accounts Receivable Financing : An alternative to bank financing for your small business DISCUSS THE ABOVE STATEMENT BY TAKING EXAMPLE OF BUSINESS ORGANIZATION OF YOUR CHOICE. Answer in three pages
What are the entries when a customer pays off their old accounts receivable balance that was...
What are the entries when a customer pays off their old accounts receivable balance that was already written off?
Distinguish the accounts receivable from the revenue cycle. What are the steps in managing accounts receivable?...
Distinguish the accounts receivable from the revenue cycle. What are the steps in managing accounts receivable? Explain each step.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT