Which of the following statements about the quality of income ratio is incorrect?
A)An increase in operating assets and a decrease in liabilities will reduce operating cash flows and thereby reduce the quality of income ratio.
B)Seasonal variations in sales and purchases of inventory can cause wide deviations in the quality of income ratio.
C)When sales are growing,receivables and inventory normally increase at a faster rate than accounts payable,which often causes cash flows from operating activities to be less than net income.
D)Aggressive revenue recognition tends to increase the quality of income ratio.

Question

Quizplus · Accepted Answer

Aggressive revenue recognition would increase net income without corresponding increases in cash flows, thereby inflating the quality of income ratio. This statement is incorrect because aggressive revenue recognition actually tends to decrease the quality of income ratio.

Which of the Following Statements About the Quality of Income