Which of the following statements is correct?
A)The optimal credit policy is determined primarily by the industry in which the firm operates and by current economic conditions.
B)Normally, when a credit sale is made, inventory is reduced by the cost of goods sold and an equal amount is credited to accounts receivable.
C)A typical business credit report provides sufficient information to eliminate the need for informed human judgment in the credit decision.
D)A customer's credit quality is usually determined in terms of the probability of the customer's default.
E)Computers have had a significant effect in increasing efficiency in the areas of payroll and inventory, but have had little impact in accounts receivable management.

Question

Quizplus · Accepted Answer

A customer's credit quality is typically evaluated in terms of the probability of default. This helps the firm assess the risk involved in extending credit and decide whether to approve or deny a credit application. The optimal credit policy is influenced by various factors like industry trends, economic conditions, and the firm's own credit goals and policies. Credit sale reduces inventory and increases accounts receivable, but not necessarily in equal amounts. While computers have improved efficiency in several areas of business, they have played a significant role in accounts receivable management by automating processes like credit applications, invoicing, and collections. Credit reports provide valuable information, but human judgment is still required to assess the information and make an informed credit decision.

Which of the Following Statements Is Correct