Business Finance

Which of the following is not one of the three companies that are the primary sources of consumer credit information in the U.S? (a) Dun & Bradstreet (b) Experian (c ) TransUnion (d) Equifax

(a) Dun & Bradstreet

The federal law that is designed to promote the informed use of credit and encourage consumers to understand the cost of credit is the (a) Truth in Lending Act (b) Equal Credit Opportunity Act (c ) Fair Credit Reporting Act (d) Fair Credit Billing Act

(a) Truth in Lending Act

If interest is compound rather than simple, the amount of interest paid over the period of the loan will be (a) higher (b) lower (c ) the same amount (d) high the first year, then lower

(a) higher

The value of products and services that have been sold but for which payment has not been received. (a) assets (b) accounts receivable (c ) liabilities (d) accounts payable

(b) accounts receivable

Categorizing all accounts receivable by the length of time they remain unpaid is known as (a) auditing (b) aging (c ) organizing (d) factoring

(b) aging

Visa and MasterCard are examples of a _________ credit plan (a) self-managed (b) contracted (c ) no cost (d) none of the above

(b) contracted

U.S consumers used credit cards to finance short-term purchases of over $_______ in a recent year. (a) $1 million (b) $100 million (c ) $2 trillion (d) $200 trillion

(c ) $2 trillion

A credit account that has not been paid by the designated date according to the credit term is (a) an old account (b) a worthless account (c ) a delinquent account (d) a current account

(c ) a delinquent account

Which of the following is not one of the 4 C's of credit? (a) character (b) collateral (c ) commitment (d) conditions

(c ) commitment

An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date is (a) financing (b) a sales contract (c ) credit (d) collateral

(c ) credit

The recipient of credit is known as the (a) creditor (b) customer (c ) debtor (d) payee

(c ) debtor

Trade credit is an example of (a) supplier financing (b) bank financing (c ) factoring (d) commercial paper

(d) commercial paper

Criteria businesses should use to decide when to offer credit include all of the following except offering credit (a) to specific categories (b) for specific types of products (c ) during specific times of the year (d) only in specific areas of the country

(d) only in specific areas of the country

Delinquent Account

A credit account that has not been paid by the due date according to the credit terms

Creditworthy

A customer who has characteristics making it highly likely that credit payments will be made on time and in full.

Charge-off

An account that is no longer considered collectible

Credit

An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date

Debtor

Borrower. The recipient of credit

Self-managed Credit Plan

Company administers the credit program and assumes all risks and returns.

Trade Credit

Credit offered to a business customer by a business

Consumer credit

Credit offered to individual consumers by a business

Conditions

Factors that are generally outside the control of the borrower or lender but can affect the risk. Economy, tech, etc

A credit account that has not been paid by the due date is known as a charge-off.

False

A loan with simple interest is more expensive than pne with compound interest since simple interest is calculated more frequently.

False

Collection procedures are not a part of credit procedures, so they should be developed after a customer establishes credit.

False

It is a wise financial decision for businesses to make credit generally available for all products any time they are offered for sale

False

Legally, a company cannot evaluate individuals and businesses to determine if they are a good credit risk since that would be evidence of discrimination.

False

The final step in the collections process should always be to take legal action.

False

The goal of all companies in completing the production-sales cycle is to maximize revenues.

False

Credit Standards

Guidelines used by a company to determine if a customer is eligible for credit.

Character

Personal qualities of the credit applicant that demonstrate responsibility and dependability

Factoring

Sale of accounts receivable

Contracted Credit Plan

Services are provided by a financial firm for a fee

Collection Procedures

Steps a business follows to keep customer credit payments up to date

A primary goal of collection procedures should be to retain the customer.

True

Accounts receivable can include both consumer accounts and business accounts.

True

Credit standards are the guidelines used by company to determine if customer is eligible for credit.

True

Deciding to extend credit to customers or use credit when making purchases should be viewed primarily as a financial decisions.

True

Factoring involves selling accounts receivable at a discount to a private company that then becomes responsible for collecting the accounts.

True

It is a common practice when offering business credit to encourage early payment to offer the buyer a price discount if payment is made quickly.

True

Most businesses today have little choice about whether to offer credit.

True

The Financial Modernization Act was written to require financial institutions to protect the privacy and security of customer information

True

The largest expense for a company when using a contracted credit plan is a discount from the sale price that the business must pay to the credit card company on each transaction.

True

The two most important factors when determining an individual's credit score are the credit payment history and the number and amount of credit accounts.

True

Credit Agreement

Written document describing the terms under which the granted and payment will be made.

Aging Schedule

categories that track payment and all accounts receivable by length of time left unpaid