Chapter 7 - the concept of trade credit Flashcards
Explain trade credit
Trade credit is when an enterprise does not have the money to buy the supply it needs so some suppliers will allow enterprises to get what they need on a buy-now pay-later basis
Define supplier
a person or organisation that provides the goods / materials or services that an enterprise needs in order to operate
Define trade payable
the amount of money owned by the enterprise to suppliers such as for raw materials received but not paid for
Define revenue
the money that comes into an enterprise from selling goods and services. to work out revenue you do a simple calculation. selling price * quantity sold = revenue
What could happen if an enterprise repays a trade payable after the agreed number of days?
percentage increase on the bill
What could happen if an enterprise repays a trade payable before the agreed number of days?
percentage discount on the agreed price
How are suppliers more likely to offer trade credit?
once the enterprise has proved that it is financially stable and able to pay back bills on time
Define customer
a person or organisation that buys goods / materials or services from an enterprise
Define trade receivable
the amount of money owed to the enterprise by costumers who have had goods or services but not yet paid for them
Define goods
the finished product sold by an enterprise to its customers
Define service
something that an enterprise might do for their customers
Define cash flow
the movement of money in and out of the enterprise
What is the amount of money a costumer owes to an enterprise shown as in the accounts?
trade receivables
What are the downsides to offering trade credit to a customer?
- the enterprise does not receive the money for goods or services immediately which can cause cash flow problems
- chasing late payments takes time
Define materials
the raw components that are needed to make the finished goods
