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Multiple Choice
Which of the following is a benefit of having a patient pay the bill at the time of service?
A
It increases the risk of bad debt expense.
B
It reduces the amount of accounts receivable on the balance sheet.
C
It complicates the revenue recognition process.
D
It delays cash inflows for the business.
Verified step by step guidance
1
Understand the concept of accounts receivable: Accounts receivable represents money owed to a business by its customers for goods or services provided on credit. When a patient pays at the time of service, it eliminates the need to record this transaction as accounts receivable.
Analyze the impact on bad debt expense: Bad debt expense arises when customers fail to pay their outstanding balances. Immediate payment reduces the risk of bad debt because there is no outstanding balance to collect later.
Evaluate the effect on cash inflows: Immediate payment ensures cash inflows occur at the time of service, rather than being delayed until a later date when accounts receivable are collected.
Consider the revenue recognition process: Revenue recognition is based on when the service is performed and payment is received. Immediate payment simplifies this process, as revenue can be recognized without waiting for future collection.
Conclude the benefit: The primary benefit of having a patient pay at the time of service is that it reduces the amount of accounts receivable on the balance sheet, which improves cash flow and reduces financial risk.