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Hi sir,
Why does higher receivables days indicate a risk of overstatement of receivables and why does higher payables days indicate a risk of overstatement of payables ?
I dont understand. Could you please explain sir ?
Higher receivables days means that receivables have risen compared to sales. One explanation could be that receivables have been overstated. A much more likely explanation is that customers are simply taking longer to pay.
Similarly, higher payables means more payables relative to purchases. One explanation could be that payables have been overstated. A much more likely explanation is that the company is simply taking longer to pay supliers.
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