Answered: tatement I - Relaxation of Credit…

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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Statement I - Relaxation of Credit Standard increases the Investment in Accounts receivable
Statement II - Restriction of credit standard may decrease the chance of incurring bad debts that ultimately affects the profit positively

a. False; True

b. True; False

c. False; False

d. True; True

Which of the following statements is most correct?

a. Other things held constant, the higher a firm’s days sales outstanding (DSO), the better its credit department.

b. If a firm sells on terms of 2/10, net 30, and its DSO is 30 days, then its aging schedule would probably show some past due accounts.

c. If a firm that sells on terms of net 30 changes its policy and begins offering all customers terms of 2/10, net 30, and if no change in sales volume occurs, then the firm’s DSO will probably increase.

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