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I appreciate your contribution to our conversation concerning the impact accounts receivable have upon liquidity and solvency ratios. Our exchange of information, ideas, and personal perspectives on the topics being studied helps each of us to better understand this material. Your input to that process is always very welcome.

A couple of additional questions:

1. What are specific formulas you would use to calculate a company's liquidity and solvency?
2. What are the specific methods approved by GAAP for companies to use in estimating their allowance for bad debt?

Sagot :

GinnyAnsweridn

Final answer:

Explanation of liquidity and solvency ratios formulas and GAAP-approved methods for estimating bad debt allowances.


Explanation:

Liquidity ratio formula:

  • Current ratio: Current assets / Current liabilities
  • Quick ratio: (Current assets - Inventory) / Current liabilities

Solvency ratio formula:

  • Debt to equity ratio: Total debt / Total equity
  • Interest coverage ratio: Earnings before interest and taxes (EBIT) / Interest expense

Approved methods by GAAP for estimating allowance for bad debt: Companies use the aging method, percentage of receivables, or the specific identification method to estimate the allowance for bad debt. These methods help companies predict and account for potential losses due to non-payment of receivables.


Learn more about Financial ratios, GAAP accounting, Bad debt allowance here:

https://brainly.com/question/31801467


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