As a way to cover their short-term financial needs, Smith & Welling CPAs have access to a fixed amount of funds from their bank they can borrow as needed. Which of the following does this exemplify?
A) trade credit
B) line of credit
C) promissory note
D) commercial paper

Question

Quizplus · Accepted Answer

A line of credit is a pre-approved amount of funds that a borrower can access on an as-needed basis. Smith & Welling CPAs have access to a fixed amount of funds from their bank, which they can borrow as needed. This fits the definition of a line of credit. Trade credit refers to the credit extended by suppliers to their customers, promissory note is a written promise to repay a debt, and commercial paper is a short-term debt instrument issued by companies.

As a Way to Cover Their Short-Term Financial Needs, Smith