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One company's Balance Sheet shows huge increase in its Accounts Receivable (A/R) compared with that of...

One company's Balance Sheet shows huge increase in its Accounts Receivable (A/R) compared with that of the previous year. Which of the following is the most reasonable analysis? Group of answer choices 1. The increase of the A/R indicates the huge growth of its sales in the current year. 2. The increase of the A/R indicates that the company has not collected cash for its sales from its customers. By doing so, the company's cash flows of this year must have decreased a lot.. 3. The increase of the A/R indicates that the company owes a lot to its creditors this year. When the payment is made, the company will decrease its cash flows by a large amount. 4. The increase of A/R indicates that the company failed to collect cash from its sales. Due to the failure, it must have reported huge losses.

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Answer #1

Answer option 2.The increase of the A/R indicate that the company has not collected cash for its from its customer .By doing so, the company's cash flow of this year must have decreased a lot.

EXPLAINATION: The sales generated on credit are recorded on the balance sheet as account receivable.

If account receivable increased from one year to next year , the implication is that more credit sales is more during the year ,which represent drain of cash .As some of the revenue came during the year increased account receivable balance instead of cash.Also increase in account receivable hurts cash flow.

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