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:

Multiple Sclerosis

A chronic autoimmune disease affecting the central nervous system, leading to varying degrees of physical and cognitive disabilities.

Stronger

Pertaining to having increased physical strength, durability, or emotional or intellectual resilience.

Susceptible

The state or fact of being likely to be influenced or harmed by a particular thing or condition.

Psychoneuroimmunology

The interdisciplinary scientific field studying the interrelation between psychological processes, the nervous system, and the immune system's functioning.