A firm's credit policy:
A)represents an investing decision.
B)has no impact on a firm's ACP.
C)affects the level of a firm's bad debts.
D)a and c
E)All of the above

Question

Quizplus · Accepted Answer

A firm's credit policy affects both the level of bad debts and the investing decision. The credit policy determines the terms and conditions under which credit will be extended to customers, which affects the probability of bad debts. At the same time, the policy also affects the level of investment in accounts receivable, which is an investing decision. Therefore, both option A and C are correct, making option D the best choice. Option B is incorrect as the credit policy does impact the ACP (average collection period) as it affects the time it takes for customers to pay their bills.

A Firm's Credit Policy