Which of the Following Statements About the Quality of Income

question 61

Multiple Choice

Which of the following statements about the quality of income ratio is correct?

• A)When sales are growing,receivables and inventory normally increase faster than accounts payable so the ratio increases.
• B)Seasonal variations in sales have no impact on the quality of income ratio.
• C)Failure to accrue appropriate expenses will inflate net income and reduce the quality of income ratio.
• D)The quality of income ratio is computed by dividing net income by cash flow from operating activities.

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Definitions:

Internal Control Elements

Components of a framework designed to ensure the effectiveness and efficiency of operations, reliable financial reporting, and compliance with laws and regulations.

Petty Cash Fund

A small amount of cash kept on hand for minor, immediate expenses.

Cash Controls

Financial procedures and policies that are implemented to manage and monitor cash transactions, to prevent theft, fraud, or errors.

FASB Controls

Guidelines and standards established by the Financial Accounting Standards Board (FASB) to govern the financial reporting and accounting practices of companies in the United States.