Explain the impact on the current ratio

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Question - Geno Paculli, a newly minted CPA, was on his second audit job in the Midwest with a new client called Pamazon. He was looking through the past few years of financials and doing a few ratios when he noticed something odd. The current ratio went from 1.9 in 2018 down to .3 in 2019, despite the fact that 2019 had significantly higher income. He noticed there were several products returned to the company due to substandard quality. The company had cleared the receivables (i.e., crediting Accounts Receivable) rather than debiting Sales Returns and Allowances. Explain the impact on the current ratio and net income as a result of these accounting practices.

Reference no: EM132499934

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