Asked by Soleil Castaneda on Apr 29, 2024
Verified
Relaxation of credit policy normally involves an expansion of investment in accounts receivable.
Credit Policy Relaxation
The act of making a company's criteria for extending credit more lenient, aiming to boost sales at the risk of higher bad debts.
Accounts Receivable
Unpaid dues from customers to a company for goods or services already delivered.
- Gain insight into the components influencing an organization's receivables magnitude and the consequence of credit policy decisions on such magnitudes.
- Understand the advantages and disadvantages of offering trade credit.
Verified Answer
JI
Jayden IrvinMay 02, 2024
Final Answer :
True
Explanation :
When a company relaxes its credit policy, it means that it is allowing its customers more time to pay for their purchases. This results in an increase in accounts receivable, as more customers will have outstanding balances. Therefore, an expansion of investment in accounts receivable is a common result of relaxing credit policies.
Learning Objectives
- Gain insight into the components influencing an organization's receivables magnitude and the consequence of credit policy decisions on such magnitudes.
- Understand the advantages and disadvantages of offering trade credit.