Question

Analytical procedures performed during an audit indicate that accounts receivable doubled since the end of the prior year. However, the allowance for doubtful accounts as a percentage of accounts receivable remained about the same. Which of the following client explanations would satisfy the auditor?A. A greater percentage of accounts receivable are listed in the "more than 120 days overdue" category than in the prior year.B. Internal control activities over the recording of cash receipts have been improved since the end of the prior year.C. The client opened a second retail outlet during the current year and its credit sales approximately equaled the older outlet.D. The client tightened its credit policy during the current year and sold considerably less merchandise to customers with poor credit ratings

Answer 1

C. The client opened a second retail outlet during the current year and its credit sales approximately equaled the older outlet.