Once a CPA has determined that accounts receivable has increased because of slow collection in a "tight money" environment, the CPA would be likely to:
A)increase the balance in the allowance for bad debts account.
B)review the going concern ramifications.
C)require the entity to tighten its credit policy.
D)expand tests regarding the collectability of receivables.

Question

Quizplus · Accepted Answer

If slow collection of accounts receivable is identified as a result of a tight money environment, the CPA would need to expand tests regarding the collectability of receivables. This would allow the CPA to determine whether the increase in accounts receivable is due to a liquidity issue or a credit quality issue. Expanding tests may include reviewing aging schedules, contacting customers directly, and analyzing payment terms. The other options (increasing the balance in the allowance for bad debts account, reviewing the going concern ramifications, and requiring the entity to tighten its credit policy) would not directly address the issue of slow collection of accounts receivable caused by a tight money environment.

Once a CPA Has Determined That Accounts Receivable Has Increased