What Is the Rule for Converting Credit Sales to Cash

question 22

Multiple Choice

What is the rule for converting credit sales to cash received from debtors?

• A)income - accounts receivable at the beginning + accounts receivable at the end = cash received.
• B)income + accounts receivable at the beginning - accounts receivable at the end = cash received.
• C)income + or - accounts receivable at the beginning + or - accounts receivable at the end = cash received.
• D)none of the above.

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Definitions:

With Recourse

A term indicating that if the primary party defaults on an obligation, the lender or third party has the right to seek repayment from the signer of the instrument.

Factoring Without Recourse

A financial transaction where a business sells its invoices to a third party without the obligation of repurchase if the invoices go unpaid.

Bad Receivables

Amounts owed to a company that are unlikely to be paid by the debtor, often due to financial difficulty.

Troubled Debt Restructuring

A process where terms of an existing debt are modified due to the debtor's inability to pay, often resulting in reduced interest rates or extended payment terms.