Accounting: Tools for Business Decision Making, 5th Edition

Published by Wiley
ISBN 10: 1118128168
ISBN 13: 978-1-11812-816-9

Chapter 10 - Reporting and Analyzing Liabilities - Questions: 18

Answer

The short term credit is a cost saver, as the rate of interest is only 6% against the interest rate of long term, which is 8%. However, the reduction in current ratio is a matter of concern. It may affect the requirements of working capital and in turn the smooth functioning of the business.

Work Step by Step

The Chief financial officer should consider the above factors. In addition, she has to also consider the times interest earned ratio.
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