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

Accounts receivables are considered a current asset on the Barnes & Noble Education, Inc. balance sheet (Barnes & Noble, 2023). Because accounts receivable are a current asset, their account balance impacts several different ratios that can be used to determine the financial performance of the company. For example, the current ratio, quick ratio, average collection period, and account receivable turnover ratio will all be impacted by the balances held in this account (Fraser & Ormiston, 2016). Further impacting these ratios is the fact that Barnes & Noble (2023) uses the net receivables rather than total receivables. The difference is that the company has already accounted for those accounts that they believe they will not receive payment on, resulting in net receivables. Had the company used total receivables, the amount would have included all open invoices that are owed to the company. By factoring in the accounts that the company may never be able to collect on, the net receivables can provide more realistic ratios since bad debt can eventually be written off, if necessary.

Because accounts receivables are such an important part of any business, and are current assets, their inclusion into liquidity and solvency ratios is imperative to demonstrate to creditors and investors how well the company is doing financially and if the company is a good risk for additional credit or investment purposes.