Asked by Sofia Avelar on Apr 29, 2024
Verified
Which of the following is the best definition of letter of credit?
A) A written statement by a bank that money will be paid, provided conditions specified in the letter are met.
B) Short-term financing in which the factor purchases all of a firm's receivables and forwards the proceeds to the seller as soon as they are collected.
C) The time period between the acquisition of inventory and when cash is collected from receivables.
D) Loan negotiated with banks for day-to-day operations.
E) Costs that fall with increases in the level of investment in current assets.
Letter Of Credit
A financial document issued by a bank guaranteeing a buyer's payment to a seller within a specified timeframe.
Written Statement
A document that records the details of a declaration or an agreement in writing.
Bank Payment
is a transaction where money is transferred from one bank account to another to fulfill a financial obligation.
- Comprehend the principle of accounts receivable financing and its impact on the functioning of a business.
Verified Answer
ZK
Zybrea KnightMay 05, 2024
Final Answer :
A
Explanation :
A letter of credit is a financial tool used in international trade to provide a guarantee from a bank that a buyer's payment to a seller will be received on time and for the correct amount. If the buyer is unable to make payment for the purchase, the bank will cover the full or remaining amount of the purchase. This definition aligns with option A, which describes a letter of credit as a written statement by a bank promising payment under specified conditions.
Learning Objectives
- Comprehend the principle of accounts receivable financing and its impact on the functioning of a business.