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

What is the major problem associated with selling on credit?

The risk that customers may not pay their accounts (bad debts)

Higher inventory turnover

Reduced need for accounts receivable management

Increased cash flow from immediate payments

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Verified step by step guidance

Understand the concept of selling on credit: Selling on credit means allowing customers to purchase goods or services and pay for them at a later date, creating accounts receivable for the business.

Identify the major problem associated with selling on credit: The primary risk is that customers may fail to pay their accounts, leading to bad debts. Bad debts occur when accounts receivable cannot be collected, resulting in a financial loss for the business.

Evaluate the other options provided: Higher inventory turnover, reduced need for accounts receivable management, and increased cash flow from immediate payments are not directly related to the risks of selling on credit. These options either describe benefits or unrelated aspects of business operations.

Focus on the correct answer: The major problem is the risk of bad debts, which requires businesses to implement strategies such as credit checks, collection policies, and allowances for doubtful accounts to mitigate this risk.

Conclude the explanation: Selling on credit can be beneficial for increasing sales, but businesses must carefully manage the associated risks to ensure financial stability and minimize losses from uncollectible accounts.