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Question
Justify the following statement.
Trade credit is the soul of business.
Solution
No business can run without 'credit'. Credit is the soul of business. Trade credit financing is the major source of short-term financing.
Manufacturers, wholesalers, and suppliers of goods or materials are called 'trade creditors'. They sell tangible goods to other business concerns on the basis of deferred payment i.e. future payment credit is extended by these business concerns with the intention to increase their sales. The business firm extends credit also because of the custom that has been built up over time.
Trade credit is not a cash loan. It results from a credit sale of goods/services, which has to be paid at a future date after the sales take place. In other words, when goods are delivered by a supplier to a customer and the payment is made after some time, it is known as trade credit.
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RELATED QUESTIONS
Write a word or a term or a phrase which can substitute the following statement.
Credit extended by the suppliers with an intention to increase their sales.
State whether the following statement is true or false.
Trade credit is major source of long term finance.
Complete the sentence.
When goods are delivered by supplier to customer on basis of deferred payment it is called as ______
Select the correct option from the bracket.
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Group 'A' |
Group B' |
|
a) Equity shares |
1) ____________ |
|
b) ____________ |
2) Dividend at fixed rate |
|
c) Debentures |
3) ____________ |
|
d) ____________ |
4) Accumulated corporate profit |
|
e) Public Deposit |
5) ____________ |
(Fluctuating rate of dividend, Preference shares, Interest at fixed rate, Retained earnings, Short term loan)
Explain the following term/concept.
Trade credit
Answer in brief.
What is trade credit?
Justify the following statement.
Trade credit is not cash loan.
