What is implied if the accounts receivable account has increased?
A) The ﬁrm's sales have decreased relative to the prior year
B) The ﬁrm's cost of sales has decreased relative to the prior year
C) Cash ﬂow from operating activities is less relative to net income
D) Cash ﬂow from operating activities is greater relative to net income

Question

Quizplus · Accepted Answer

An increase in accounts receivable implies that the company has made sales for which it has not yet received cash, thus increasing its revenues without a corresponding increase in cash flow. This situation suggests that cash flow from operating activities is less relative to net income, as the company is earning income without the immediate cash benefit.

What Is Implied If the Accounts Receivable Account Has Increased