The Inclusion of a Compensating Balance Requirement in a Line

question 88

True/False

The inclusion of a compensating balance requirement in a line of credit will reduce the effective annual cost of credit since the bank has additional collateral for the borrowing.

---

Definitions:

Inventory Flow Assumption

Pertains to the method used by a business to account for the order in which inventory is sold or used over time.

Beginning Inventory

The cost of merchandise on hand for sales at the commencement of an accounting cycle.

Cost Of Goods Sold

The immediate costs linked to the manufacture of products a business sells, involving material and labor costs.

Net Income

The earnings a company retains after removing all expenses and taxes from its revenue.