Which of the following statements related to trade credit is true?
A)Trade credit has an explicit interest cost.
B)Large firms tend to use trade credit more than small firms.
C)The total trade credit owed at any point in time is called accounts receivable.
D)Trade credit arises from the time lag between the receipt of and payment for supplies.

Question

Quizplus · Accepted Answer

Trade credit arises from the time lag between the receipt of and payment for supplies. It is essentially a short-term loan extended by suppliers to their customers, allowing them to postpone payment until a later date. It does not usually carry an explicit interest cost, although suppliers may offer discounts for early payment. Both small and large firms can use trade credit, but small firms may be more reliant on it due to difficulties accessing other forms of financing. The total trade credit owed at any point in time is called accounts payable, not accounts receivable.

Which of the Following Statements Related to Trade Credit Is