Fraudulent sales and accounts receivables recorded at year-end (with no cost of goods sold entry)will:
A)Decrease recorded net income.
B)Decrease the current ratio.
C)Increase days of sales in accounts receivable.
D)Increase year-end recorded inventory.

Question

Quizplus · Accepted Answer

Recording fraudulent sales and accounts receivables at year-end increases the total accounts receivable balance without a corresponding increase in cost of goods sold or inventory reduction. This action inflates sales and accounts receivable figures, leading to an increase in the days of sales in accounts receivable (DSO) metric, which measures the average number of days it takes a company to collect payment after a sale has been made. This is because the DSO calculation includes the inflated accounts receivable balance, making it appear that it takes longer to collect on sales.

Fraudulent Sales and Accounts Receivables Recorded at Year-End (With No