Which of the Following Signals a Potential Fraud That May

question 49

Multiple Choice

Which of the following signals a potential fraud that may occur for the overstatement of inventory accounts?

• A) Reserves for contingencies are reducing rapidly.
• B) Inventory amounts are growing faster than sales.
• C) Repairs and maintenance accounts have significant credit entries.
• D) The purchase of manufacturing equipment is occurring at a rapid rate.

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Definitions:

Accounts Receivable

Amounts owed to a business by its customers for goods or services delivered but not yet paid for.

Perpetual Inventory System

An accounting method that records inventory transactions in real-time, providing a continuous account of inventory levels.