Which one of the following explanations for the growth of accounts receivable outstripping the growth of sales presents a red flag?
A)The firm adopts new credit terms that lengthen the payment terms to the industry average.
B)The firm adopts an aggressive revenue recognition policy.
C)The firm develops an attractive credit policy for first time buyers.
D)The firm changes its timing of revenue recognition to a more conservative approach.

Question

Quizplus · Accepted Answer

Adopting an aggressive revenue recognition policy could indicate that the company is recognizing revenue prematurely or inappropriately, which could potentially result in inflated accounts receivable balances. This could be a red flag for investors or creditors.

Which One of the Following Explanations for the Growth of Accounts