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 cost associated with extending credit terms to customers?

Lower administrative expenses

Increased risk of uncollectible accounts

Reduced sales revenue

Immediate cash inflow from sales

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Verified step by step guidance

Understand the concept of extending credit terms: When a company offers credit terms to customers, it allows them to pay for goods or services at a later date rather than immediately. This can impact various financial aspects of the business.

Identify the potential costs associated with extending credit terms: These include increased risk of uncollectible accounts (bad debts), delayed cash inflows, and potentially higher administrative expenses for managing accounts receivable.

Analyze each option provided in the question: Evaluate whether each option represents a cost or benefit of extending credit terms. For example, 'Lower administrative expenses' is not a cost but a benefit, while 'Increased risk of uncollectible accounts' is a clear cost.

Focus on the correct answer: Increased risk of uncollectible accounts is a cost because extending credit terms increases the likelihood that some customers may fail to pay their debts, leading to bad debt expenses.

Conclude by understanding the trade-offs: While extending credit terms can boost sales by attracting more customers, it also comes with risks such as delayed cash inflows and uncollectible accounts, which must be managed carefully.