what function you are performing to answer these questions. You were asked as a reader of the financial statements, not the inside company personnel. The reader must look at the changes in the accounts relative to each other, use ratio analysis, and examine the cash outflow for operations to analyze the situation.

You own an automobile parts company and have been approached by a leading car manufacturer to supply parts to the company. How would you determine that the car manufacturer has a good record of servicing sales and paying its suppliers? What are the signs you would look out for in the financial statements for the possibility of bad debts? What are the advantages and disadvantages of allowing customers to make purchases on credit? Give reasons for your answers.