#1
Which of the following is NOT a commonly used credit policy?
Cash on delivery
ExplanationCOD is a payment method upon delivery, not a credit policy.
#2
What does 'Net 30' credit terms mean?
Payment is due within 30 days of the invoice date
ExplanationIndicates the time frame for payment after the invoice date.
#3
What is the purpose of a credit application?
To establish credit terms
ExplanationFormalizes the process of determining creditworthiness and terms.
#4
What does 'COD' stand for in credit terms?
Cash on Delivery
ExplanationRequires immediate payment upon receipt of goods.
#5
What is the purpose of a credit policy?
To establish guidelines for granting credit
ExplanationDefines rules and criteria for extending credit to customers.
#6
Which of the following is a risk associated with liberal credit policies?
Higher bad debts
ExplanationIncreased likelihood of customers defaulting on payments.
#7
What does 'Credit terms 2/10, net 30' mean?
A 2% discount is available if payment is made within 30 days
ExplanationOffers a discount for early payment within a specified period.
#8
Which of the following is a characteristic of a restrictive credit policy?
Tighter credit terms
ExplanationInvolves stricter conditions for extending credit to customers.
#9
Which of the following is an advantage of offering cash discounts?
Improved liquidity
ExplanationEncourages faster payment, enhancing available funds.
#10
Which of the following is NOT a component of credit terms?
Sales tax
ExplanationSales tax is a separate charge and not part of credit terms.
#11
What is the primary objective of implementing credit policies?
To reduce risk
ExplanationAims to minimize the likelihood of non-payment and bad debt.
#12
Which of the following is NOT a factor considered in evaluating creditworthiness?
Gender
ExplanationGender is irrelevant in assessing creditworthiness.
#13
What is the purpose of aging accounts receivable?
To assess the creditworthiness of customers
ExplanationEvaluates the timely receipt of outstanding payments.
#14
Which of the following is NOT a common method for managing credit risk?
Random selection
ExplanationRandom selection is not a systematic risk management method.