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, thereby reducing the 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 often causing operating cash flows to be less than income.
D)Aggressive revenue recognition tends to increase the ratio.

Question

Quizplus · Accepted Answer

Aggressive revenue recognition increases net income, the denominator, and therefore decreases the ratio.

Which of the Following Statements About the Quality of Income