Do you agree or disagree with this rationale related to how items within accounts receivable could affect liquidity and solvency?

Starbucks' accounts receivable section is located in Note 1: Summary of Significant Accounting Policies of its Form 10-K annual report (Starbucks Corporation, 2022). In this section, Starbucks discloses its accounting policies for accounts receivable, including its credit terms, allowance for doubtful accounts, and revenue recognition.

For example, in its 2022 Form 10-K, Starbucks disclosed the following information about its accounts receivable:

• Credit terms: Starbucks typically offers its customers net 30 terms, meaning that customers have 30 days to pay their invoices after the date of purchase.
• Allowance for doubtful accounts: Starbucks maintains an allowance for doubtful accounts to estimate the amount of accounts receivable that it expects to be unable to collect. The allowance is based on a historical analysis of bad debt losses and current economic conditions.
• Revenue recognition: Starbucks recognizes revenue from sales of goods and services when it delivers the goods or services to the customer and has a reasonable expectation of collecting the amount receivable.

Impact of Accounts Receivable on Liquidity and Solvency Ratios

Accounts receivable can impact liquidity and solvency ratios in a number of ways.

• Liquidity: Accounts receivable are a current asset, which means that they are expected to be converted to cash within one year. Therefore, a company's accounts receivable turnover ratio, which measures how quickly it collects its receivables, can be a good indicator of its liquidity. A higher accounts receivable turnover ratio indicates that the company is collecting its receivables quickly and has a good cash flow (Fraser & Ormiston, 2016).
• Solvency: Accounts receivable are also a consideration when calculating solvency ratios, such as the debt-to-equity ratio and the liabilities-to-assets ratio. A high level of accounts receivable can make a company appear more leveraged and less solvent