Disadvantages of Using Current Liabilities as Opposed to Long-Term Debt

question 66

Multiple Choice

Disadvantages of using current liabilities as opposed to long-term debt include

• A)greater risk of not being able to pay bills.
• B)uncertainty of interest costs.
• C)higher cash flow exposure.
• D)both A and B.

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Definitions:

Uncollectible Accounts

Accounts receivable deemed uncollectible by a business, representing money owed by customers that is unlikely to be paid and usually written off as an expense.

Expense Recognition Principle

An accounting guideline stating that expenses should be recorded in the same period as the revenues they help to generate.

Direct Write-off Method

An accounting method for uncollectible receivables where the specific account's balance is directly removed from accounts receivable.

Allowance Method

A technique in accounting used to adjust accounts receivable for the amount estimated to be uncollectible.