Which of the Following Statements Is Correct

question 37

Multiple Choice

Which of the following statements is correct?

• A)The optimal credit policy is determined primarily by the industry in which the firm operates and by current economic conditions.
• B)Normally, when a credit sale is made, inventory is reduced by the cost of goods sold and an equal amount is credited to accounts receivable.
• C)A typical business credit report provides sufficient information to eliminate the need for informed human judgment in the credit decision.
• D)A customer's credit quality is usually determined in terms of the probability of the customer's default.
• E)Computers have had a significant effect in increasing efficiency in the areas of payroll and inventory, but have had little impact in accounts receivable management.

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Definitions:

Nature of Assets

The inherent characteristics that define the resources owned by a business, potentially providing economic value or benefit in the future.

Optimal Level

The most efficient, effective, or desirable amount or degree of something.

Financial Leverage

The use of borrowed money (debt) to amplify the potential return on investment.

Break-even EBIT

The level of earnings before interest and taxes (EBIT) at which a company neither makes a profit nor incurs a loss.