A firm's bad debts:
A)should be reduced by more aggressive collection procedures.
B)are normally positively related to a firm's ACP.
C)are normally unaffected by changes in a firm's cash discount.
D)a and b
E)All of the above

Question

Quizplus · Accepted Answer

Bad debts can be reduced by more aggressive collection procedures, such as stricter credit policies and quicker follow-up on overdue accounts. However, bad debts are also positively related to a firm's accounts receivable turnover and thus its average collection period (ACP), as a slower turnover or longer ACP indicates a higher risk of customers defaulting. Cash discounts may not have a significant impact on bad debts as they relate to the creditworthiness of customers rather than their incentives to pay earlier for a discount.

A Firm's Bad Debts