A Guaranteed Line of Credit in Which a Bank Makes

question 101

Multiple Choice

A guaranteed line of credit in which a bank makes a binding commitment to provide a business with funds up to a specified credit limit at any time during the term of the agreement. Which of the following describes these arrangements?

• A) revolving credit agreement
• B) trade credit
• C) short-term bank loan
• D) commercial paper

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Definitions:

Uncollectible Receivables

Debts owed to a company that are deemed unrecoverable and are written off as a loss because the debtor is unable to pay.

Allowance for Doubtful Accounts

An estimation of the amount of accounts receivable that may not be collected, which is used as a contra asset to adjust the net value of accounts receivable.

Direct Write-off Method

An accounting approach where uncollectable debts are directly written off against income at the time they are deemed non-recoverable.

Percentage of Sales Method

A financial forecasting model that bases future sales, expenses, and other financial elements as a percentage of sales revenue.