Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

7. Receivables and Investments

Types of Receivables

Financial Accounting

7. Receivables and Investments

Types of Receivables

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Multiple Choice

Which of the following is a disadvantage of selling goods on credit?

It always increases immediate cash flow for the business.

It eliminates the need to track customer payments.

There is a risk that some customers may not pay their accounts receivable.

It guarantees higher profits for the company.

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Verified step by step guidance

Understand the concept of selling goods on credit: Selling goods on credit means allowing customers to purchase goods or services now and pay for them later, typically within a specified period.

Identify the potential risks associated with selling on credit: One major disadvantage is the risk of customers failing to pay their accounts receivable, which can lead to bad debts and financial losses for the business.

Analyze the incorrect options: Selling on credit does not increase immediate cash flow, as payment is deferred. It also does not eliminate the need to track customer payments; in fact, tracking becomes more critical. Additionally, selling on credit does not guarantee higher profits, as unpaid debts can reduce profitability.

Focus on the correct answer: The correct disadvantage is the risk that some customers may not pay their accounts receivable, which can negatively impact the business's financial health.

Conclude by emphasizing the importance of credit management: Businesses must implement effective credit policies and monitor accounts receivable to minimize the risk of non-payment and ensure financial stability.