Multiple Choice
When a company is owed for sales made to customers on credit, the asset is called:
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7. Receivables and Investments
Types of Receivables
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Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
For a large retailer, the time that an obligation remains as an account payable (A/P) is typically:
A
6 to 12 months
B
1 to 2 days
C
Over 2 years
D
30 to 60 days
Verified step by step guidance1
Understand the concept of accounts payable (A/P): Accounts payable refers to the short-term liabilities or obligations that a company owes to its suppliers for goods or services purchased on credit.
Recognize the typical payment cycle for retailers: Retailers often aim to pay their suppliers within a reasonable timeframe to maintain good relationships while optimizing cash flow. This timeframe is usually referred to as the accounts payable turnover period.
Analyze the options provided: The problem lists several timeframes for how long obligations remain as accounts payable. Consider the nature of retail operations, where suppliers expect payment within a standard industry timeframe.
Identify the standard industry practice: For large retailers, the typical accounts payable period is generally 30 to 60 days. This allows retailers to manage cash flow effectively while adhering to supplier agreements.
Conclude that the correct answer aligns with industry norms: Based on the explanation above, the correct timeframe for accounts payable obligations for large retailers is 30 to 60 days.
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