Easy Rider Incorporated is a custom manufacturer of motorcycles. An analyst identifies the following issues in Easy Rider's financial statements:
ssue 1 Customer advances have been steadily increasing over the past 36 months.
Issue 2 Accounts payable turnover has been decreasing and there has been a shift from operating liabilities to financing liabilities.
Considered separately, do these issues indicate a deteriorating liquidity position?（ ）
An increase in customer advances can be viewed as a prediction of future revenues rather than expected cash outflows. Thus, by itself, an increase in customer advances would not indicate a deteriorating liquidity position. The shift from operating liabilities to financing liabilities may indicate the beginning of a liquidity crisis. Suppliers eventually balk at slower payments (decrease in accounts payable turnover) and an increase in borrowing may be necessary to finance day-to-day operations.