Once a CPA has determined that accounts receivable has increased because of slow collection in a "tight money" environment,the CPA would be likely to
A) Increase the balance in the allowance for bad debts account.
B) Review the going concern ramifications.
C) Require the client to tighten their credit policy.
D) Expand tests regarding the collectability of receivables.

Question

Quizplus · Accepted Answer

If accounts receivable has increased because of slow collection in a "tight money" environment, it indicates the possibility that some of the receivables may not be collected at all. Therefore, to ensure the collectability of such receivables, the CPA would expand the testing regarding the collectability of receivables, which includes confirming with customers and analyzing the aging of receivables, among others. Increasing the balance in the allowance for bad debts account, reviewing the going concern ramifications, and requiring the client to tighten their credit policy are methods to mitigate the risk of bad debts, but they do not address the underlying issue of slow collection.

Once a CPA Has Determined That Accounts Receivable Has Increased