Which of the following transactions decreases the quality of income ratio?
A)The cash purchase of equipment.
B)The issue of stock in exchange for cash.
C)Collecting cash for services to be provided in the future.
D)Earning revenue which was previously recorded as unearned revenue.

Question

Quizplus · Accepted Answer

The quality of income ratio is cash flow from operating activities divided by net income. Earning revenue increases net income (the denominator) and therefore decreases the ratio.

Which of the Following Transactions Decreases the Quality of Income