Chapter 7 Account Receivable and Inventory Management

payment period for credit sales can be extended over 30 to 60 days. This will create ____ to the company

• account payable

• inventory

• account receivable

• marketable securities

one of the things that will determine the speed of payment from customers for credit sales is _____

• cash discount policy

• payback policy

• bad debts

• cash budget

a cash discount allows a ____ in price of payment is made within a specific time period.

• increase

• decrease

• stable

• uncertain

a 2/10, net 30 cash discount means that a person who purchase RM100 worth of product should pay RM____ if he/she make the payment in day 8 after the purchase. (leave your answer to zero decimal places. Example; 20 )

Answer explanation

original price = RM100

reduction in price = 2% x RM100 = RM2

Price to be paid if payment made from day 1-day 10 after purchase

= RM100 -RM2 = RM98

banks may provide funds for firms for many purposes, EXCEPT

• financing seasonal needs

• product expansion

• long term growth

• managers' personal needs

in order for firms to give credit extension to their customers, they need to assess three primary policy variables which include the following, EXCEPT

• credit standards

• bad debts

• terms of trade

• collection policy

Banks will refer to the 5Cs of credit as an indication of whether a loan will be repaid on time, late, or not at all. The 5Cs cover the following, EXCEPT

• characteristic

• collateral

• conditions

• currency

an increase in the average collection period may be caused by ______

• poor credit administration

• good payable of raw materials

• low bad debts

• increase in firms' assets

In a manufacturing company, inventory is usually divided into three basic categories. Which of the following is included in these categories?

• work in progress

• returned goods

• company's machines

• partially finished raw materials

What will happen if the firm uses Just-in-Time (JIT) model in managing its inventory?

• create inventories build up

• minimize inventory

• reduce quality of finished products

• firms able to keep up with the demand all the time.