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Explain the accounting constraint of materiality, and its role in Accounts Receivable. Provide an explanation as...

Explain the accounting constraint of materiality, and its role in Accounts Receivable.

Provide an explanation as to why accountants care how long it takes to collect AR.

How does poor AR Management impact the organizations profitability?

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Expert Solution

Answer : accounting constraint of materiality is a gateway to determine whether a transactions of a business are important to me the financial results of business organisation

To determine whether a transaction is to be recorded in financial statements is determined on concept of materiality

For example if a transaction is material enough to exceed the constraint threshold it is to be recorded in financial statements, other wise if a transaction does not exceed constraint threshold is not be recorded

Accounts receivable has an impact on organisation profitability, for example if business organisation has high accounting receivable cycle time that is it's recovery time is fast then the cash is used for day to day business purpose without going for a loan to run business

In case accounts receivable cycle time is slow it able to recover money from debtors slowly it results in sortagsh of cash in business and to go for outside borrowing hence organisation profitability may decrease

Thank you hope this helps you

ekkarill92 answered 1 year ago
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