AICPA Exam CPA-Business Topic 2 Question 22 Discussion

Actual exam question for AICPA's CPA Business Environment and Concepts exam

Question #: 22
Topic #: 2

[All CPA Business Environment and Concepts Questions]

A change in credit policy has caused an increase in sales, an increase in discounts taken, a reduction in the investment in accounts receivable, and a reduction in the number of doubtful accounts. Based upon this information, we know that:

ANet profit has increased.

BThe average collection period has decreased.

CGross profit has declined.

DThe size of the discount offered has decreased.

Show Suggested Answer

Suggested Answer: B

Choice 'b' is correct. Whenever accounts receivable (AR) are decreasing when sales are increasing (and the decrease in AR is not due to an increase in bad debt write offs), this would indicate that the average collection period for AR has decreased.

Choices 'a', 'c', and 'd' are incorrect. There is insufficient information in the question to draw conclusions about these items.

by Cory at May 03, 2022, 04:59 AM

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