Evaluating the Quality of Receivables

question 224

Essay

Evaluating the quality of receivables
(a.) The 2010 annual report of Modern Books, a publicly traded corporation, reports accounts receivable (net of allowance for doubtful accounts), of $190,714 as of February 28, 2010. What assurance do readers of Modern Books' annual report have that these receivables really exist and are not fictitious assets recorded to make the balance sheet "look good"?
(b.) The accounts receivable turnover rate is frequently used in evaluating the liquidity of accounts receivable. How is the accounts receivable turnover rate computed? What type of information does the accounts receivable turnover rate provide?

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Definitions:

Coal Mining

The process of extracting coal from the ground, an important economic activity in various regions around the world.

Excavating Coal Mines

Excavating Coal Mines involves the extraction of coal from the ground, using various techniques like surface mining and underground mining, to meet energy production needs.

Adjacent Land

Refers to parcels of land or property that share a common border or are in close proximity to each other.

Resale Price Maintenance

A practice whereby manufacturers and distributors agree on the minimum prices at which retailers can sell their products.