Which of the following is a common problem associated with selling goods or services on credit?

• A. Elimination of the need for credit analysis
• B. Increased risk of uncollectible accounts (bad debts)
• C. Reduction in sales revenue
• D. Immediate cash inflow from all sales

Answer: (B)

Verified step by step guidance

1. Understand the concept of selling goods or services on credit: When a company sells on credit, it allows customers to purchase goods or services and pay at a later date, rather than requiring immediate payment.
2. Identify the risks associated with selling on credit: The primary risk is the possibility that some customers may fail to pay their debts, leading to uncollectible accounts or bad debts.
3. Analyze the options provided in the question: Evaluate each option to determine which one aligns with the risks of selling on credit. For example, 'Elimination of the need for credit analysis' is incorrect because credit analysis is essential to assess the creditworthiness of customers.
4. Focus on the correct answer: 'Increased risk of uncollectible accounts (bad debts)' is the most accurate description of the common problem associated with selling on credit, as it directly addresses the financial risk involved.
5. Review the incorrect options: 'Reduction in sales revenue' and 'Immediate cash inflow from all sales' are not typical problems of selling on credit. Selling on credit can actually increase sales revenue, but it delays cash inflow rather than providing immediate cash.