Question

The advantage of extending credit to customers is that it helps customers to buy products and services, thereby increasing the seller's revenue. The disadvantages of extending credit are costs related to_________.

a.marketing.
b.increased notes receivable.
c.increased sales.
d.bad debt expense.

Answer 1

d.bad debt expense.

Step-by-step explanation:

Bad debts expense is an account receivable that is no longer collectible. Bad debt is a debt obligation by a customer of which he or she is unable to pay. It arises when the company sells goods on credit, but unfortunately, the customer fails to pay.

Customers fail to honor payments due to financial challenges or bankruptcy. Bad debts are a cost to the business. When a bad debt has been realized, the amount is debited to the bad debts expense account and credited to accounts receivable. Bad debts reduce the amounts expected as inflow and increase costs in a business. To mitigate against bad debts, companies provide an allowance for bad and doubtful debts.