ACCT 2001 Lecture Notes - Lecture 21: Financial Statement, Income Statement, Accounts Receivable
ACCT 2001 verified notes
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Document Summary
A. pros and cons of extending credit when customers don"t pay. The advantage of extending credit is that it helps customers buy products and services, thereby increasing the seller"s revenues. The disadvantages of extending credit are the following additional costs introduced: If credit is extended, the company will have to hire people to. (a) evaluate whether each customer is creditworthy, (b) track how much each customer owes, and. (c) follow up to collect the receivable from each customer. Inevitably, some customers dispute what they owe ,or they run into financial difficulties and cannot pay their account balances. These bad debt costs are considered an additional cost of extending credit. Even if the company were to collect in full from customers, it will likely have to wait 30 60 days before receiving the cash. Similar advantages and disadvantages are considered when deciding whether to create notes receivable.
