Question

Please add the explanation.

8. If a company making only cash sales is considering allowing customer credit, then __________.

A) sales will likely decrease

B) the change will result in a source of funds

C) receivables will likely increase

D) net working capital will decrease if funding needs are met with long-term liabilities

E) expenses will fall due to monthly billings and collection efforts

Answer 1

Option C receivables will likely increase is the correct answer

If a company making only cash sales is considering allowing customer credit, then receivables will likely increase. Offering credit often encouraging customers increase the amount of their spending. It will increase the receivables. when a company sells goods on credit it reports the transaction on both its income statement and balance sheet. It will increase the sale sales revenue in income statement and account receivable on balance sheet. Allowing credit is all about winning new customer and it will increase sales revenue and account receivable