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14.5   Review the procedures for quantitatively considering cash discount changes,

Question : 14.5   Review the procedures for quantitatively considering cash discount changes, : 1415277

 

14.5   Review the procedures for quantitatively considering cash discount changes, other aspects of credit terms, and credit monitoring.

1) If the level of bad debt attributable to credit policy is relatively constant, increasing collection expenditures can be expected to reduce bad debts.

2) 2/15 net 45 translates as 2 percent of the balance is due in 15 days; the remaining balance is due in 45 days.

3) If a firm increases its cash discount period, the firm's investment in accounts receivable due to non-discount takers now paying earlier is expected to decrease.

4) If a firm increases its cash discount period the firm's investment in accounts receivable, due to discount takers still getting cash discounts but paying later, is expected to increase.

5) If a firm's credit period is decreased, the sales volume, the investment in accounts receivable, and the bad debt expenses can be expected to increase.

6) When a firm initiates or increases a cash discount, the net effect on the accounts receivable investment is difficult to determine because the nondiscount takers paying earlier will reduce the accounts receivable investment, while the new customer accounts will increase this investment.

7) The net effect of changes in a cash discount period is quite difficult to analyze because they are directly attributable to the three forces affecting a firm's investment in accounts receivable.

8) An increase in accounts receivable turnover due to an increase in collection efforts will decrease a firm's marginal investment in accounts receivable.

9) A decrease in collection efforts will result in an increase in sales volume, an increase in the investment in accounts receivable, an increase in bad debt expenses, and a decrease in collection expenditures.

10) Increased collection expenditures should reduce the investment in accounts receivable and bad debt expenses, increasing profits.

 

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