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Until recently, ABC supply purchased office supplies on 30-day terms from its suppliers. However, a new office supply company recently moved into the area and
Until recently, ABC supply purchased office supplies on 30-day terms from its suppliers. However, a new office supply company recently moved into the area and is offering ABC 45 days to pay. ABCs accounts payable have been averaging 30 days on hand and $80,000 per month. If ABC decides to take advantage of the longer terms, purchases all of its supplies from the new company, and pays at 45 days, what would be the likely result?
- Accounts payable will increase to about $120,000, and ABC may need less short-term financing.
- Accounts payable will increase to about $106,667, and the change should have little or no effect on ABCs financing needs.
- Accounts payable will remain the same, but inventory will increase 50 percent.
- Accounts payable will remain the same, but Harrison will have more difficulty justifying prompt collections from its customers.
need answer please.
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