An analyst reviewing a company's cash flow statement noticed that the company reported a large increase in inventory, but no increase in accounts receivable.Which of the following is not a possible explanation for this?
A)The company experienced a decrease in demand for its products.
B)The company is stockpiling inventory in anticipation of a strike at a supplier.
C)The company has obsolete inventory on hand.
D)The company increased its credit terms but not its production time.

Question

Quizplus · Accepted Answer

The increase in inventory without an increase in accounts receivable suggests that the company is not selling its products on credit or increasing sales, which contradicts the idea of extending credit terms. Options A, B, and C are plausible explanations for an increase in inventory without a corresponding increase in accounts receivable.

An Analyst Reviewing a Company's Cash Flow Statement Noticed That