Accounts Receivable and Inventory Are Some of the Most Liquid

question 50

Essay

Accounts receivable and inventory are some of the most liquid assets a firm owns and their market values are typically fairly close to book value.Even so,in the eyes of many lenders,these assets make for inadequate collateral on loans,particularly if the business looking to borrow the money is in a liquidity crisis.Why do you think this is the case?

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Definitions:

Cost of Goods Available

The total cost of inventory that a company has to sell in a given period, including both beginning inventory and the cost of any goods manufactured or purchased during the period.

Schedule

A plan for carrying out a process, detailing the times at which certain events are to occur.

Work in Process

Inventory consisting of items that are in the production process but are not yet completed.

Ending Balance

The final amount in an account at the end of a period, calculated by adjusting the starting balance for charges, credits, and other financial activity.