Which of the Following May Suggest That a Financial Statements

question 29

Multiple Choice

Which of the following may suggest that a financial statements are unreliable?

• A) The reported profits are far less than the operating cash flow for the period.
• B) The income tax expense is low compared to profits and the balance sheet shows a significant deferral.
• C) Inventory valuation and revenue recognition has changed significantly.
• D) There is an increase in Notes to the financial statements.
• E) Modifications in general accounting policies are similar to those adopted by a large part of the industry.

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Definitions:

Percent of Sales Method

A financial forecasting tool used to estimate certain balance sheet and income statement accounts based on a projected sales figure.

Uncollectible Accounts

Accounts receivable that are considered unlikely to be collected and are written off as a bad debt expense.

Credit Sales

Sales where the customer is allowed to pay for the product or service at a later date, extending credit.

Bad Debt Expense

The estimated amount of accounts receivable that is not expected to be collected.