A local lawn care business is considering changing their credit policy for customers. Their accountant gathered the following information to help management decide. The lawn care business would like to switch to an all-cash sales system since they currently collect only 72% of their credit sales. If they implement this change, then how would that impact the business?

Question

A local lawn care business is considering changing their credit policy for customers. Their accountant gathered the following information to help management decide.  The lawn care business would like to switch to an all-cash sales system since they currently collect only 72% of their credit sales. If they implement this change, then how would that impact the business?

Quizplus · Accepted Answer

This question requires familiarity with financial performance measures including how various changes in company policies impact an organization's financial position. Choice A is correct because having an-all cash sales system would lead to an increase in cash flow as sales would no longer remain in accounts receivable or potentially uncollected. The remaining choices are incorrect since they falsely associate an increase in cash sales with an increase in total sales or assume that a stricter policy would attract new customers.

A Local Lawn Care Business Is Considering Changing Their Credit