When a firm stretches accounts payable without hurting its credit rating, the cost of foregoing thecash discount is
A) immaterial.
B) reduced.
C) increased.
D) unaffected.

Question

Quizplus · Accepted Answer

By stretching accounts payable, a firm can delay payments without hurting its credit rating. However, in doing so, the firm will have to forgo the cash discount offered by the supplier for prompt payment. This means that the cost of the goods purchased will be higher than if the discount had been taken. Therefore, the cost of foregoing the cash discount is reduced, but not eliminated.

When a Firm Stretches Accounts Payable Without Hurting Its Credit