A firm has just ended its calendar year making a sale in the amount of $200,000 of merchandise purchased during the year at a total cost of $150,500. Although the firm paid in full for the merchandise during the year, it has yet to collect at year end from the customer. The possible problem this firm may face is
A) low profitability.
B) lack of cash flow.
C) inability to receive credit.
D) high leverage.

Question

Quizplus · Accepted Answer

The firm may face a lack of cash flow as it has not yet collected payment from the customer for the sale made. The sale may have been recorded as revenue, but if the cash has not been received, the firm may have difficulty in meeting its own financial obligations, such as paying suppliers or employees.

A Firm Has Just Ended Its Calendar Year Making a Sale