When firms enter into loan agreements with their​ bank, it is very common for the agreement to have a restriction on the minimum current ratio the firm has to maintain. ​ So, it is important that the firm be aware of the effects of their decisions on the current ratio. Consider the situation of Advanced Autoparts​ (AAP) in 2009. The firm had total current assets of $1,907,570,000 and current liabilities of $1,362,550,000.   a.  What is the​ firm's current​ ratio? b.  If the firm were to expand its investment in inventory and finance the expansion by increasing accounts​ payable, how much could it increase its inventory without reducing the current ratio below 1.2​? c.  If the company needed to raise its current ratio to 1.5 by reducing its investment in current assets and simultaneously reducing accounts payable and​ short-term debt, how much would it have to reduce current assets to accomplish this​ goal

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Bad Debts

At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.  

Accounts Receivable

The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.