CFA Practice Question

There are 90 practice questions for this study session.

CFA Practice Question

What is the impact of sales of receivables?

I. Operating cash flow is reduced because the proceeds are reported as financing cash flows.
II. A portion of operating cash flow in the current period is borrowed from the future.
III. In the future, if a company sought to reduce the amount of receivables sold or securitized, operating cash flow would decline.
A. II only
B. I and II
C. II and III
Explanation: The proceeds are reported as operating cash flow.

User Contributed Comments 2

User Comment
dimanyc If the transfer is a sale, the proceeds are classified as operating inflows; subsequent collections from the customer by the transferor are as an agent and are not reported as cash inflows. Thus, collection is accelerated because a portion of operating cash flow in the current period is effectively borrowed from the future. If a company, in the future, seeks to reduce the amount of receivables sold or securitized, operating cash flow will decline.
heinzlive Statement I is false because it is in fact operating cash flow that would be increased through the selling of receivables.
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