Question

A restrictive short-term financial policy tends to: Group of answer choices

a) reduce future sales more so than a flexible policy.
b) reduce order costs as compared to a more flexible policy.
c) grant credit to more customers. incur more carrying
d) costs than a flexible policy does. encourage credit sales over cash sales.

Answer 1

A restrictive short-term financial policy tends to reduce future sales as it grants credit to fewer customers due to stringent credit requirements, likely leading to more cash transactions and less credit sales.

Step-by-step explanation:

A restrictive short-term financial policy is designed to reduce a company's risk by maintaining tight credit terms, thereby minimizing the amount of capital tied up in accounts receivable and inventory. Such a policy may lead to certain outcomes:

• Reduced future sales compared to a flexible policy, as fewer customers would meet the stricter credit criteria.
• Lower carrying costs than a flexible policy, since less capital is tied up in inventory and receivables.
• It does not encourage credit sales over cash sales; rather, it may encourage cash transactions due to stringent credit terms.

Overall, a restrictive policy is likely to be more conservative in terms of who is granted credit, aiming to ensure that the company has sufficient liquidity and minimizes the risk of bad debts.