CA Intermediate · Financial Management and Strategic Management · Management of Payables (Creditors)
In the context of management of payables, which of the following best describes 'stretching accounts payable'?
Stretching accounts payable means delaying payment to suppliers beyond the agreed credit period. The firm uses trade credit as extra short-term finance, but risks losing discounts, penalties and goodwill with suppliers, so it is different from paying early to claim a discount.
- APaying suppliers earlier than the due date to earn a cash discount
- BDelaying payment to suppliers beyond the agreed credit periodCorrect
- CConverting trade payables into long-term debentures
- DNegotiating a lower purchase price in return for advance payment
Explanation
Stretching accounts payable means the firm delays payment beyond the credit period granted by the supplier, effectively using the supplier's money as a source of finance. Paying early to earn discount is the opposite action. Stretching can damage credit standing and may forfeit cash discounts.
Did you get it right without looking?
One question tells you little. A timed set on Management of Payables (Creditors) shows your real accuracy, how long you take and where you lose marks.
More Management of Payables (Creditors) questions
- Sharma Traders buys on terms '2/10, net 40'. Taking a 360-day year and ignoring compounding, the approximate annual cost of forgoing the dis…
- Verma Ltd buys on terms 3/10, net 60 and purchases Rs 4,90,000 worth (gross invoice value) of goods per lot. It can pay on day 10 taking the…
- Which of the following is a recognised advantage to a buyer of using trade credit as a source of short-term finance?
- Mehta Traders buys goods on terms '2/10, net 30'. If it forgoes the discount and pays on day 30, the approximate annualised cost of trade cr…
- Which of the following is a recognised technique or arrangement for managing trade payables in which the buyer's bank pays the supplier earl…
- Which of the following is generally an advantage of effective payables management, particularly for a firm that delays payments within the a…