Assume a company has been maintaining a receivables factoring program for the past five years and has been experiencing the same level of sales, factoring, and bad debts over that period. Customers typically pay their receivables within 60 days. Which of the following is true with respect to the current period (all else equal)?

Question

Quizplus · Accepted Answer

Since the company has maintained the same level of sales, factoring, and bad debts over the past five years, it is likely that the same will continue in the current period, meaning that cash flow from operations will be stable. Option A (the accounts receivable balance will decrease) is unlikely to be true, as the company has maintained the same level of sales, factoring, and bad debts. Net income is also unlikely to decline (Option C) unless there are other factors at play. Option D is irrelevant as it is not related to the information provided.

Assume a Company Has Been Maintaining a Receivables Factoring Program