Asked by Emily Gellis on Jul 05, 2024
Verified
A seller who extends credit for a longer period than the purchaser's inventory cycle:
A) Will not end up financing other aspects of the purchaser's business beyond the immediate purchase and sale of the inventory.
B) Will force the purchaser to pay for inventory before that inventory is resold.
C) Will be assured that the purchaser will be able to convert the inventory into cash before payment is due.
D) Will have no need to offer a discount period and a net credit period.
E) Will end up financing a portion of the purchaser's receivables period as well.
Inventory Cycle
The process or time frame from when inventory is acquired to when it is sold, highlighting inventory management efficiency.
Financing Receivables
A type of financial activity where a company uses the money it is owed from customers (accounts receivable) as collateral for a loan.
Discount Period
The time span between the present date and the maturity date of a bill of exchange or other negotiable instrument during which it is sold at below its face value.
- Understand the impact of credit policies on the cash cycle and operating cycle of a business.
Verified Answer
Learning Objectives
- Understand the impact of credit policies on the cash cycle and operating cycle of a business.
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