The Primary Purpose of Compensating Balances Required of Borrowers Is

question 36

True/False

The primary purpose of compensating balances required of borrowers is to compensate the bank in the event the borrower defaults on the loan.

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Definitions:

Allowance Method

An accounting technique used to estimate and account for bad debts or uncollectible accounts receivable.

Bad Debts

Accounts receivable that a company considers uncollectible and writes off as a loss in its financial statements.

Sales

The transactions involving the exchange of goods or services for money.

Accounts Receivable Turnover

A financial metric that measures how many times a business collects its average accounts receivable amount within a period, indicating the efficiency of credit and collections.