The Credit Decision Usually Includes Riskier Customers

question 53

Multiple Choice

The credit decision usually includes riskier customers. The credit decision should adjust for this by:

• A) determining the probability that customers will pay and reducing the expected cash flow.
• B) discounting the net cash flows at a lower discount rate.
• C) discounting the cash inflow at a higher discount rate.
• D) delaying collections on these customers.
• E) speeding up deliveries to riskier customers.

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Definitions:

Installment Sales

A sales method that allows customers to pay for goods or services over a period of time in installments.

Critical Event

A significant occurrence that has a profound impact on an entity's operations or financial performance, necessitating special consideration in accounting and financial reporting.

Measurability Conditions

Criteria that determine when revenue can be recognized in the accounting process, ensuring it can be reliably measured.

Percentage-Of-Completion Method

An accounting method used to recognize revenue and expenses of long-term projects proportionally with the degree of completion.