Question

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 client to tighten their credit policy.
d. Expand tests regarding the collectability of receivables.

Answer 1

When accounts receivable has increased due to slow collection in a 'tight money' environment, a CPA would likely increase the balance in the allowance for bad debts account.

Step-by-step explanation:

When a CPA determines that accounts receivable has increased due to slow collection in a 'tight money' environment, the CPA would be likely to increase the balance in the allowance for bad debts account.

This is because slow collection of accounts receivable increases the risk of bad debts. By increasing the balance in the allowance for bad debts account, the company is making a provision for potential uncollectible accounts, which aligns with the CPA's assessment of slow collection.

Expanding tests regarding the collectability of receivables is also a possible action to take, as it allows the CPA to further assess the likelihood of collecting the outstanding amounts.