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Assume that the only current assets are receivables and inventories and the only current liabilities are accounts payable. 1000.00 800.00 Receivables Expected sales for the
Assume that the only current assets are receivables and inventories and the only current liabilities are accounts payable. 1000.00 800.00 Receivables Expected sales for the year Expected collections from these sales Expected ending receivables Actual sales for the year Actual collections [No write-offs yet] Actual ending receivables 900.00 650.00 Inventories Expected and actual purchases 850.00 Assume that the purchases could not be adjusted downwards because the purchase commitments were made before the drop in sales become known. 730.00 Expected cost of goods sold from these purchase Expected ending inventories Actual COGS Actual ending inventories 665.00 Accounts payable Expected payments during the year for purchases Expected ending accounts payable 700.00 Assume that the suppliers were unwilling or unable to extend credit and had to be paid earlier than expected. 760.00 Actual payments during the year for purchases Actual ending accounts payable Misleading liquidity metrics Expected working capital Actual working capital Expected current ratio as a multiple Actual current ratio as a multiple
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