A company extends credit to customers because it expects the:
A) rise in sales revenue to be greater than the rise in cost of extending credit.
B) delay in receiving cash to cost more than the increase in wage costs.
C) tax savings from a lower net income to be greater than the cost of extending credit.
D) bad debts expense to be less than the additional wage costs.

Question

Quizplus · Accepted Answer

The decision to extend credit to customers is based on the expected increase in sales revenue exceeding the additional costs incurred from extending credit, such as the cost of capital, administration, and bad debts. Ultimately, the company expects to earn a net profit from the extended credit.

A Company Extends Credit to Customers Because It Expects The