Which of the following statements is most correct?
A) If credit sales as a percentage of a firm's total sales increases, and the volume of credit sales also increases, then the firm's accounts receivable will automatically increase.
B) It is possible for a firm to overstate profits by offering very lenient credit terms which encourage additional sales to financially "weak" firms. A major disadvantage of such a policy is that it is likely to increase uncollectible accounts.
C) A firm with excess production capacity and relatively low variable costs would not be inclined to extend more liberal credit terms to its customers than a firm with similar costs that is operating close to capacity.
D) Firms use seasonal dating primarily to decrease their DSO.
E) Seasonal dating with terms 2/15, net 30 days, with April 1 dating, means that if the original sale took place on February 1st, the customer can take the discount up until March 15th, but must pay the net invoice amount by April 1st.

Question

Quizplus · Accepted Answer

Offering lenient credit terms can lead to increased sales to financially weak firms, which may result in higher uncollectible accounts, thus overstating profits.

Which of the Following Statements Is Most Correct