Answered: Questions to be Answered: Why is it…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Chp#8 (Provide a detailed 4-5 sentence explanation)

Issue: You have been hired as the accounting manager of Tay-lor, Inc., a provider of custom furniture. The company recently switched its method of paying its salespeople from a straight salary to a commission basis in order to encourage them to increase sales. The salespeople receive ten percent of the sales price at the time of the sale. You have noticed that the company’s accounts receivable balance is growing because the salespeople are granting more credit to their customers

Questions to be Answered:

Why is it important to closely monitor the company’s accounts receivable balance?
Why could a large balance lead to cash flow problems?

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