[gateway3601]

Hi All,

Can anybody help me clarify the explanation on this sim question? Allowance for doubtful accounts increased from the prior year, but allowance for doubtful accounts as a percentage of accounts receivable decreased form the prior year. The question wants 3 possible explanations for the scenario. The 3 explanations are 1) Items shipped on consignment during the last month of the year were recorded as sales 2)A significant number of credit memos for returned merchandise that were issued during the last month of the year were not recorded 3) A larger percentage of sales occurred during the last month of the year, as compared to the prior year. All 3 explanations are making sense to me because increase in sales will result in increase in AR and thus decrease in the ratio. What I do not understand is that why can’t this answer be one of the explanations: sales increased at a greater percentage than cost of goods sold increased, as compared to the prior year?

Thanks, any input is appreciated.

FAR(61,73,73,74,76) REG-81 AUD(61,64,58) BEC(71,77)