ACCA Applied Knowledge · Business and Technology · The relationship between accounting and other business functions
A sales manager wants to offer a major customer 120 days' credit to win a large order. Which accounting-related concern should the finance function raise first?
Finance should first raise the impact on cash flow and the risk of irrecoverable debts. Offering 120 days' credit delays cash receipts, raises receivables and financing costs, and increases the chance of non-payment, so the sales benefit must be weighed against these costs.
- AThe effect on cash flow and the risk of irrecoverable debtsCorrect
- BThe colour scheme of the product packaging
- CThe training needs of the customer's staff
- DThe brand image of competitors
Explanation
Extended credit delays cash receipt, increasing working capital needs and the risk of bad debts. Finance should assess these before approving. The other options are not accounting concerns related to credit terms.
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