FM27 2 - Further some of the current customers who do not...

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Answers and Solutions: 27 - 2 27-5 A/R Sales Profit a. The firm tightens its credit standards. - - 0 b. The terms of trade are changed from 2/10, net 30, to 3/10, net 30. 0 + 0 c. The terms are changed from 2/10 net 30, to 3/10, net 40. 0 + 0 d. The credit manager gets tough with past-due accounts. - - 0 Explanations: a. When a firm “tightens” its credit standards, it sells on credit more selectively. It will likely sell less and certainly will make fewer credit sales. Profit may be affected in either direction. b. The larger cash discount will probably induce more sales, but they will likely be from customers who pay bills quickly.
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Unformatted text preview: Further, some of the current customers who do not take the 2 percent discount may be induced to start paying earlier. The effect of this would be to reduce accounts receivable, so accounts receivable and profits could go either way. c. A less stringent credit policy in terms of the credit period should stimulate sales. The accounts receivable could go up or down depending upon whether customers take the new higher discount or delay payments for the 10 additional days, and depending upon the amount of new sales generated. d. If the credit manager gets tough with past due accounts, sales will decline, as will accounts receivable....
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