Which of the Following Transactions Increases the Quality of Income

question 30

Multiple Choice

Which of the following transactions increases the quality of income ratio?

• A)The accrual of revenue.
• B)The accrual of an expense.
• C)The cash payment of an account payable.
• D)The payment of a cash dividenD.The quality of income ratio is cash flow from operating activities divided by net income.Accrued expenses are incurred but not paid.They reduce net income but do not reduce cash flow.The decrease in net income (the denominator) therefore increases the quality of income ratio.

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Definitions:

Minimum Efficient Scale

The smallest level of production a firm can achieve while still taking full advantage of economies of scale regarding costs per unit.

Economies of Scale

The cost advantages that enterprises obtain due to their scale of operation, leading to a reduction in average costs with increased output.

Total Fixed Cost

Total Fixed Cost is the sum of all costs that remain constant regardless of the level of production or business activity.