Question

The first step in performing planning analytical procedures is to develop an exception of the account balance. which of the following does not typically represent a likely expected relationship for cash accounts?
a. The company reports consistent profits over several years, but operating cash flows are declining.
b. No unsual large cash or other liquid assest transactions are found Operating cash flow is not significantly different from that of the prior year.
c. Investment income is consistent with the level of returns expected from investments

Answer 1

Answer:

A. The company reported continuous profit over several years but operating cash flows are declining

Explanation:

This is not expected to occur, the profit recorded is usually from an increase in turnover which is expected to increase cash level and aid the company's operation.

A reverse situation of low cash level and continuous profit may be due large credit sales and the customers not making payments. This situation will have an adverse effects on the company in not been able to meet his obligations as at when due.