An Auditor Learns That Collections of Accounts Receivable During the First

question 52

Multiple Choice

An auditor learns that collections of accounts receivable during the first ten days of January were debited to cash and credited to accounts receivable as of December 31. The effect generally will be to:

• A) overstate the current ratio with no effect on working capital at December 31.
• B) overstate both working capital and the current ratio at December 31.
• C) overstate working capital with no effect on the current ratio at December 31.
• D) leave both working capital and the current ratio unchanged at December 31.

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Definitions:

Manufacturing Overhead

All indirect costs associated with the manufacturing process, excluding direct material and direct labor costs.

Direct Materials

Raw materials that can be directly attributed to the manufacturing of a product.

Income Taxes

Taxes levied by governments on the income generated by businesses and individuals within their jurisdiction.

Formal Written Statement

A document that articulates official information or positions in a structured and official manner.