Question

Which of the following is a highly suspicious financial statement relationship? a. Increased revenues with increased cash flows b. Increased volume with decreased cost per unit c. Increased inventory with decreased payables d. Increased inventory with increased warehousing costs

Answer 1

Answer:

The correct answer is letter "C": Increased inventory with decreased payables.

Explanation:

If in a general ledger there is more inventory but fewer account payables it is a clear indication that there has been a mistake recording the operations of a company or there are activities in the company that might be the result of fraud. Accounts payable represent obligations of the company to a third party because of short-term debt incurred. If there is more inventory, the logical is to have more accounts payable recorded.