What Are Excessive Accruals

question 12

Multiple Choice

What are excessive accruals?

• A)Accruals that are based on professional judgment.
• B)Accruals that are based on ethical considerations.
• C)Accruals based on contractual incentives or opportunism.
• D)Accruals required by GAAP.

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Definitions:

Accounts Receivable Period

The accounts receivable period is the average number of days it takes a company to collect payments owed by its customers.

Operating Cycle

The period of time between the acquisition of goods for production and the cash received from their sale.

Cash Cycle

The period between the outlay of cash for the purchase of inventory and the receipt of cash from accounts receivable, representing the time it takes for a company to turn its investments in inventory back into cash.

Receivables Factoring

The process of selling a business's accounts receivable to a third party at a discount to quickly generate cash.