Question

Which of the following would raise a red flag about the cash-to-cash cycle when reviewing the Statement of Cash Flows?

a. increase in both accounts receivable and accounts payable
b. decrease in both accounts receivable and accounts payable
c. increase in accounts receivable and decrease in accounts payable
d. stable levels of accounts receivable and accounts payable.

Answer 1

The correct answer choice that would raise a red flag about the cash-to-cash cycle when reviewing the Statement of Cash Flows is c. increase in accounts receivable and decrease in accounts payable.

Step-by-step explanation:

The correct answer choice that would raise a red flag about the cash-to-cash cycle when reviewing the Statement of Cash Flows is c. increase in accounts receivable and decrease in accounts payable. In the cash-to-cash cycle, the goal is to decrease the amount of time it takes for a company to convert its cash investments into cash receipts from sales. An increase in accounts receivable indicates that customers owe the company more money, which means it may take longer to collect those payments.

A decrease in accounts payable indicates that the company is paying its suppliers less, which could strain relationships and potentially disrupt the supply chain. Overall, an increase in accounts receivable and a decrease in accounts payable suggest a potential cash flow problem for the company, as it may be struggling to collect payments while also reducing its payment obligations to suppliers.