The Accounts Receivable Approach to Credit Policy Supports the Theory

question 3

Multiple Choice

The accounts receivable approach to credit policy supports the theory that:

• A) a firm's risk of offering credit to a new customer is limited to the cost of the items sold.
• B) the best credit policy is an all-cash policy.
• C) the cost of offering credit to a new customer is the same as the cost of offering credit to an existing customer.
• D) increasing receivables guarantees increasing profits.
• E) the default risk of a credit policy is the same as the default risk under an all cash-policy if your customers remain the same.

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Definitions:

Express Warranty

An express warranty is a seller's promise or guarantee that a product will meet a specified level of quality and reliability.

Puffing

Exaggerated or superlative comments or opinions made by sellers regarding the quality or desirability of their goods, not considered legally binding promises.

UCC

A complete legislative framework, the Uniform Commercial Code, oversees all commercial dealings within the United States.

Negotiate

The process of discussing terms to reach a mutual agreement in transactions, contracts, or disputes.