If Accounts Receivable Are Increasing Faster Than Net Income, Other

question 54

Multiple Choice

If accounts receivable are increasing faster than net income, other things being equal, net cash flows from operating activities will:

• A) increase, so the Quality of Income Ratio will fall.
• B) decrease, so the Quality of Income Ratio will fall.
• C) increase, so the Quality of Income Ratio will rise.
• D) decrease, so the Quality of Income Ratio will rise.

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Definitions:

First-In, First-Out Method

An inventory valuation method where the first items placed into inventory are the first ones sold.

Weighted-Average Method

An inventory costing method that calculates the cost of inventory based on the average cost of all similar items in the inventory, considering their weight.

Process Costing System

An accounting system used for homogenous products, where costs are accumulated and then assigned to units of output on an average basis.

Work in Process Account

An account that tracks the costs associated with goods that are in the process of being manufactured but are not yet complete.