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Series 79: Collection, Analysis & Evaluation of Data
Series 79 practice questionmediumFinancial Statement Analysis

If a company reports significant deferred revenue, what does this indicate about its cash flow?

  1. ACash flow is likely negative
  2. BRevenue is overstated
  3. CThere are likely off-balance-sheet liabilities
  4. DCash was received before revenue was earned✓ Correct answer
Explanation

Why DCash was received before revenue was earned

Deferred revenue means cash was collected in advance, improving current period cash flow. Mistaking deferred revenue for revenue overstatement or hidden liabilities is a common trap.

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