Asked by Megan Campbell on Apr 25, 2024
Verified
A reasonable amount of uncollectible accounts is evidence
A) that the credit policy is too strict.
B) that the credit policy is too lenient.
C) of a sound credit policy.
D) of poor judgments on the part of the credit manager.
Uncollectible Accounts
Receivables that are deemed to be uncollectable from debtors, leading to their recognition as a loss.
Credit Policy
Guidelines that define the credit limits and terms extended by a business to its customers.
- Understand the importance of a manageable number of uncollectible accounts in assessing a company's credit policy.
Verified Answer
MJ
Miranda Jackovich7 days ago
Final Answer :
C
Explanation :
A reasonable amount of uncollectible accounts is evidence of a sound credit policy because it shows that the company is extending credit to customers who have the potential to pay, but also recognizes that some customers may default. A credit policy that is too strict may result in lost sales, while a policy that is too lenient may result in excessive write-offs. Poor judgments by the credit manager may also result in excessive write-offs, but this is not the only explanation for uncollectible accounts.
Learning Objectives
- Understand the importance of a manageable number of uncollectible accounts in assessing a company's credit policy.