Which of the following should tend to decrease the firm's profitability?
1) a decrease the speed with which receipts are processed
2) an increase in the allowance for doubtful accounts
3) riding the credit of the firm's suppliers
A)1 and 2
B)1 and 3
C)2 and 3
D)1, 2, and 3

Question

Which of the following should tend to decrease the firm's profitability?
1) a decrease the speed with which receipts are processed
2) an increase in the allowance for doubtful accounts
3) riding the credit of the firm's suppliers​
A)​1 and 2
B)​1 and 3
C)​2 and 3
D)​1, 2, and 3

Quizplus · Accepted Answer

1) A decrease in the speed with which receipts are processed can lead to slower cash inflows, affecting the firm's liquidity and potentially its profitability due to delays in reinvestment or the need for short-term financing. 2) An increase in the allowance for doubtful accounts indicates a higher expectation of uncollectible receivables, directly reducing net income and thus profitability. 3) Riding the credit of the firm's suppliers (paying suppliers as late as possible without incurring penalties) might actually improve a firm's cash position in the short term and does not directly decrease profitability.

Which of the Following Should Tend to Decrease the Firm's