This relates to question 33 from CFAI 2… dont recall the exact question, but there answer said: Collecting receivables has NO effect on the current ratio HUH??? why not? accounts receivables is a CURRENT ASSET, so of course it does… could they be wrong? sure, if it was the CASH ratio, than fair enough… am i missing something here??
Bluey, I think it is true - collecting receivable will not have any impact on current ratio. The reason is - when you collect receivables, you are converting that to cash. Overall there is no impact to CA. So there is no change to CR.
THink about what happens to the accounts. Collect A/R, decrease A/R, increase Cash by the same amount so the net effect on current assets is 0. Current Ratio = CA/CL
ahhh legends… sorry, i was stressin out a bit back then… makes perfect sense now… thanks guys i think i need some sleep… good luck studying !
Having trouble with this problem. 2000 accured wages 10,000 accounts receivable Most likely effects of these two transactions on Current Ratio & CFO (increase or decrease) 1) accounts receivable is a current asset that is recorded as increase to accounts receivable and increase to revenue. So how does this decrease Current Assets? 2) CFO you subtract an increase in Accounts Receivable. So how does it Increase?
I just got this… it says COLLECT accounts receivable, not increase in accounts receivable. So COLLECTIONS is a wash in the current ratio and it reduces Accounts receivable in the CFO. Those tricky test writers!