Final answer:
When selling on account, an entity must determine the creditworthiness of the customer, set credit terms, and monitor accounts receivable.
Step-by-step explanation:
When an entity sells on account, there are several credit-related factors that need to be determined. These factors include:
- Assessing the creditworthiness of the customer: The entity needs to determine whether the customer has a good credit history and is likely to repay the amount owed. This can be done by conducting a credit check and reviewing the customer's past borrowing and repayment behavior.
- Setting credit terms: The entity needs to establish the terms of credit, such as the payment due date, interest rate, and any penalties for late payment. These terms should align with the entity's credit policy and help mitigate the risk of non-payment.
- Monitoring accounts receivable: Once the sale has been made, the entity must keep track of the accounts receivable to ensure timely payment. This may involve sending reminders, following up with customers, and taking appropriate action in case of non-payment.