The purpose of credit analysis is to:
A)Reconcile the accounts receivable balance
B)Modify the terms of trade credit
C)Organize the right side of the balance sheet
D)Decide whether or not to grant credit to a customer

Question

Quizplus · Accepted Answer

The purpose of credit analysis is to assess the creditworthiness of potential or existing customers and determine whether they are likely to pay back any credit extended to them. This is the decision-making process of whether or not to grant credit to a customer. Option A is incorrect because accounts receivable reconciliation is an accounting process to match the balance of accounts receivable with the actual amount of money owed by customers. Option B is incorrect because modifying the terms of trade credit is the negotiation process between the seller and the customer to determine the terms of payment. Option C is incorrect because organizing the right side of the balance sheet is a process of properly arranging liabilities and equity on the right side of the accounting equation.

The Purpose of Credit Analysis Is To