Series 79 practice questionmediumFinancial Statement Analysis
If a company reports significant deferred revenue, what does this indicate about its cash flow?
- ACash flow is likely negative
- BRevenue is overstated
- CThere are likely off-balance-sheet liabilities
- DCash was received before revenue was earned✓ Correct answer
Explanation
Why D — Cash 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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