If accounts receivable are rising faster than net income,other things being equal,net cash flow from operating activities is:
A)rising,so the Quality of Income Ratio is falling.
B)falling,so the Quality of Income Ratio is falling.
C)rising,so the Quality of Income Ratio is rising.
D)falling,so the Quality of Income Ratio is rising.

Question

Quizplus · Accepted Answer

Accounts receivable represent revenue that has not yet been collected, so if they are rising faster than net income, it suggests that cash is not being received as quickly as it is being earned. This will result in a decrease in net cash flow from operating activities. A decrease in net cash flow from operating activities results in a decrease in the Quality of Income Ratio, which measures the proportion of a company's operating cash flow that comes from its income statement. Therefore, the Quality of Income Ratio falls.

If Accounts Receivable Are Rising Faster Than Net Income,other Things