CFA Practice Question

There are 89 practice questions for this study session.

CFA Practice Question

Which of the following will most affect the valuation of a firm's receivables?
A. The allowance for uncollectible accounts.
B. The rate of sales growth.
C. The type of business that a firm is engaged in.
Explanation: The most important factor that will affect the valuation of receivables, of the choices given, is the allowance for uncollectible accounts. This is so, because receivables are reported on the balance sheet as "net realizable value;" i.e., total amount of receivables, less an allowance for uncollectible accounts. If management understates this allowance, the realizable value of accounts receivable will be overstated and the firm's liquidity position will not be as strong as it would appear.

User Contributed Comments 1

User Comment
D3456 What about the type of business they're in? What if their industry is not largely based off an accounts receivable basis? Won't that equally have a large impact?
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