Multiple Choice
Which type of accounting primarily focuses on providing information to external parties such as suppliers, investors, and creditors?
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1. Introduction to Accounting
Types of Accounting
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Which of the following is an example of revolving credit?
A
Mortgage loan
B
Installment loan
C
Auto loan
D
Credit card account
Verified step by step guidance1
Understand the concept of revolving credit: Revolving credit is a type of credit that allows the borrower to repeatedly borrow up to a certain limit, repay, and borrow again without having to reapply for credit. It is typically associated with accounts like credit cards.
Compare revolving credit to other types of loans: Unlike revolving credit, loans such as mortgage loans, installment loans, and auto loans are fixed-term loans where the borrower receives a lump sum upfront and repays it in fixed installments over time.
Identify the characteristics of a credit card account: A credit card account is a prime example of revolving credit because it allows the user to make purchases up to a credit limit, repay the balance (either partially or fully), and continue using the account for future transactions.
Eliminate the incorrect options: Mortgage loans, installment loans, and auto loans do not allow repeated borrowing after repayment; they are structured as fixed-term loans, not revolving credit.
Conclude that the correct answer is a credit card account, as it fits the definition and characteristics of revolving credit.
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