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chapter 12 - Ch 12 1-4 7-10 Mike Solomich 1 The function of...

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Ch 12 1-4 7-10 Mike Solomich 1/11/09 1. The function of merchandise credit is a firm’s ability to obtain merchandise, inventory, and services in exchange for its promise of future payment. Merchandise credit is disguised from credit for financial capital for business operations, because the value received includes merchandise generally obtained for resale. 2. The receivables difficulties rank first as a fundamental cause of business failure because if businesses are not receiving their credit that they loaned out, they are going to have to put it under bad debt expense. It takes a long time for a business to make up any bad debt expense. 3. Merchandise credit is a key part in business because not all businesses have enough cash to pay for every piece of merchandise, inventory, and services at the time that they need the merchandise. It allows businesses to stay up and continue running their business and later paying back for the merchandise or service.
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