Which of the Following Is the Best Definition of a Collection

question 324

Multiple Choice

Which of the following is the best definition of a collection policy.

• A) A compilation of accounts receivable by the age of each account.
• B) Wholly owned subsidiary that handles credit extension and receivables financing through commercial paper.
• C) A discount given for a cash purchase.
• D) Procedures followed by a firm in collecting accounts receivable.
• E) Conditions on which a firm sells its goods and services for cash or credit.

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Definitions:

Monthly Interest Rate

The percentage of a sum of money charged for its use per month, often used in reference to loans or credit balances.

Accounts Receivable Balance

The aggregate sum of funds that customers owe a company for products or services that have been provided but remain unpaid.

Operating Cycle

The duration of time from the purchase of inventory to the collection of receivables from sales, outlining how long it takes for a company to turn investments in inventory into cash.

Safety Stocks

Additional quantities of stock kept in inventory to reduce the risk of stockouts caused by variations in supply or demand.