If a company can stretch its accounts payable without damaging its credit rating, it is effectively ___________ the cost of foregoing the cash discount.

Question

Quizplus · Accepted Answer

If a company can stretch its accounts payable, it means the company is delaying its payments and taking advantage of the credit terms offered by the creditors. By doing so, it reduces the cost of foregoing the cash discount because it can keep the cash for a longer period of time and invest it in other areas. This can improve the company's liquidity and cash flow, but it does not affect the credit rating unless the company defaults on its payments. Therefore, the correct answer is reducing.

If a Company Can Stretch Its Accounts Payable Without Damaging