It is particularly important in growth companies for auditors to monitor the entity's collection period because any growth in sales is usually accompanied by ________.
A)growth in accounts receivables that consume operating cash
B)increase in premium gross margins
C)decrease in the client's collection period
D)increase in the market share for the client's product

Question

Quizplus · Accepted Answer

When a growth company sees an increase in sales, it often leads to a corresponding increase in accounts receivables, which can tie up operating cash. Monitoring the collection period is important to ensure that the company is effectively collecting on outstanding invoices and managing its cash flow. Option B is incorrect because there is no guarantee that an increase in sales will also lead to an increase in gross margins. Option C might be true, but it is not necessarily related to the company's growth or sales. Option D is also incorrect as an increase in market share may not have any impact on the company's collection period.

It Is Particularly Important in Growth Companies for Auditors to Monitor