A reasonable amount of uncollectible accounts is evidence
A) that the credit policy is too strict.
B) that the credit policy is too lenient.
C) of a sound credit policy.
D) of poor judgments on the part of the credit manager.

Question

Quizplus · Accepted Answer

A reasonable amount of uncollectible accounts is evidence of a sound credit policy because it shows that the company is extending credit to customers who have the potential to pay, but also recognizes that some customers may default. A credit policy that is too strict may result in lost sales, while a policy that is too lenient may result in excessive write-offs. Poor judgments by the credit manager may also result in excessive write-offs, but this is not the only explanation for uncollectible accounts.

A Reasonable Amount of Uncollectible Accounts Is Evidence