Final answer:
Managing Accounts Receivable can positively impact profit by ensuring steady cash flow and liquidity but can negatively affect it if mismanaged by causing cash flow problems and an increase in bad debts. Good management practices are crucial for maintaining a healthy level of working capital and for the overall financial stability of the company.
Step-by-step explanation:
Managing Accounts Receivable can have both positive and negative impacts on a company's profit. On the positive side, diligent Accounts Receivable management can ensure a steady cash flow, improve liquidity, and enhance the company's ability to reinvest and grow. Proper management involves prompt invoicing, active follow-up, and credit risk assessments to maintain a healthy level of working capital, thus positively affecting the accounting profit.
On the negative side, if Accounts Receivable is mismanaged, it can lead to cash flow problems, as money owed to the company is not received in time to cover expenses or invest in growth opportunities. Poor management could also result in a high number of bad debts, negatively impacting the economic profit and the company's financial health. Just like a bank expects some loan defaults, a company anticipates some level of payment defaults, and excessive defaults can lead to a negative adjustment in profit calculations and potentially a negative net worth, similar to a banking scenario with unexpected defaults.