Gnome, Inc. institutes a policy of selling on credit for the ﬁrst time in the ﬁrm's history. Gnome ﬁnds, much to its dismay, that it must pay to produce the merchandise but it now experiences a delay in
Collection of revenues. Gnome's problem describes the ____________ factor of credit policy
Effects.

Question

Quizplus · Accepted Answer

The problem being faced by Gnome is related to the cost factor of credit policy. As Gnome is selling on credit for the first time, it is experiencing a delay in the collection of revenue, which is affecting its cash flows and increasing its costs. This delay in cash flows is a common problem associated with credit sales, as it creates a gap between the time when goods are sold and when the cash is received.