Question

#2. ABC Corp is considering changing its payment policy for customers. Currently, ABC requires customers to pay for all delivered shipments within 90 days of receipt. Since the economy is slowing down, ABC is contemplating allowing customers to have up to 270 days to pay for all delivered shipments. Briefly (i.e., in 1 or 2 sentences) explain your answers to the following. (a) Will this policy increase or decrease the accounts receivable item on ABC’s balance sheet? (b) In the short run, will this policy result in a major change in the net income of ABC Corp? (c) In the short run, will this policy result in a major change in the cash flow of ABC Corp? (d) In the long run (i.e. after a few years), will this policy result in a major change in the cash flow of ABC Corp.

Answer 1