CFA Practice Question

There are 90 practice questions for this study session.

CFA Practice Question

A large swing in the ratio of revenue to cash collected from customers is most likely a sign that a company ______
A. accelerated revenue recognition.
B. overstated revenue in prior periods.
C. adopted more conservative revenue recognition practices.
Explanation: The company might have accelerated the recognition of revenue by reporting revenue in the current period that should be reported in a future period.

User Contributed Comments 6

User Comment
phadrian can someone please explain this one?
uviolet This is classic accrual accounting where the revenue is recognized when earned not when received. So if the company showed higher revenue but lower collection, then they may be attempting show accelerated revenue recognition
dream007 large swing can be interpreted as an increase in cash collected, therefore option c would also be correct.
somk this is not a classic accrual accounting. accelerated revenue recog. is when ,for eg, you recognize a phase of a project in the current quarter, while it is still under construction and wont be finished until the next quarter. or when you recognize a service before it's provided. Enron (i thought dropping Enron in here would make me sound professional)
ascruggs92 "Large swing" is pretty vague considering that the ratio can swing in either direction. Depending on which way it swings (becomes bigger or smaller) the implication is different.
Swoods2 yes, did not say direction of swing
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