A firm has just ended its calendar year making a sale in the amount of $200,000 of merchandise purchased during the year at a total cost of $150,500. Although the firm paid in full for the merchandise during the year, it has yet to collect at year end from the customer. The possible problem this firm may face is
A) inability to receive credit.
B) high leverage.
C) low profitability.
D) lack of cash flow.

Question

Quizplus · Accepted Answer

The firm may face a lack of cash flow because it has paid for the merchandise but has not yet collected payment from the customer. This could result in a temporary shortage of liquid assets to cover expenses or invest in new inventory.

A Firm Has Just Ended Its Calendar Year Making a Sale