Author Question: Lee's Lions has made a profit in each of the last two months. However, it is not generating enough ... (Read 118 times)

londonang · **on:** Jul 5, 2018

Lee's Lions has made a profit in each of the last two months. However, it is not generating enough cash from credit sales to cover all of its current expenses.

The owners understand the value of increasing sales volume by offering customers the ability to purchase on credit, but they are frustrated by the current situation. Explain to them the issues in granting credit and the management of accounts receivable.
What will be an ideal response?

Question 2

Which one of the following reflects a weak internal control system?
a. all employees are well supervised
b. a single employee is responsible for comparing a receiving report to an invoice
c. all employees must take their vacations
d. a single employee is responsible for collecting and recording of cash

aham8f · **Reply #1 on:** Jul 5, 2018

Answer to Question 1

Businesses try to increase overall sales by granting credit or accepting credit cards. The problem with granting credit is that it postpones the collection of cash from a sale. Yet businesses need cash in order to purchase more inventory and cover the costs of running the business. Lee's Lions should review its credit policy. It should tighten its policy and grant credit only to the most credit worthy customers. It should also pursue collections from customers in order to maximize cash flow. An alternative to store credit would be to accept credit cards. In exchange for a small service fee, the credit card companies accept the risks of granting credit and collecting cash from customers.

Answer to Question 2

d