If a Firm Is Growing and Expanding Its Accounts Receivable

question 76

Multiple Choice

If a firm is growing and expanding its accounts receivable and inventories faster than its current operating liabilities its cash flow from operation will normally be:

• A) greater than net income
• B) less than net income
• C) greater than the change in working capital from operations
• D) greater than the change in cash.

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Definitions:

Accounts Receivable

Debts owed by clients to a company for products or services that have been provided but remain unpaid.

Indirect Method

A way of calculating cash flows from operating activities in the statement of cash flows by adjusting net income for changes in balance sheet items.

Net Income

The total profit of a company after all revenues, gains, expenses, and losses have been accounted for, typically within a specific period of time.

Working Capital Method

A financial metric used to evaluate a company's operational efficiency, calculated as current assets minus current liabilities.