Which of the following statements is 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 that encourage additional sales to financially weak firms. A major disadvantage of such a policy is that it is likely to increase uncollectible accounts.
C)Firms use seasonal dating primarily to decrease their DSO.
D)Seasonal dating with terms 2/15, net 30 days, with April 1 dating, means that if the original sale took place on February 1, the customer can take the discount up until March 15, but must pay the net invoice amount by April 1.

Question

Quizplus · Accepted Answer

Offering very lenient credit terms can lead to an increase in sales to financially weak firms, but it may also increase uncollectible accounts, leading to a potential overstatement of profits. This is because the firm has to recognize the revenue from the sale in the current period, but may not be able to collect the cash until a later period.

Which of the Following Statements Is Correct