Which item is considered a cost to be included in deciding credit policy?

Which item is considered a cost to be included in deciding credit policy?

• A. Costs of credit control
• B. Interest paid on existing debt
• C. Marketing expenditure
• D. Depreciation expense

Answer: (A)

When deciding credit policy, include costs that arise specifically from offering credit and managing it. Costs of credit control cover the expenses of administering the credit system—credit checks, invoicing, chasing overdue payments, debt collection, and related administrative work. These are incremental costs that change with how generous or strict the credit terms are, so they must be considered in the policy decision. Other items don’t fit this focus because they are not caused by the credit policy itself: interest paid on existing debt is a financing cost tied to existing borrowings rather than the act of offering credit; marketing expenditure is a broader promotional cost not specific to credit terms; depreciation is a non-cash accounting charge for fixed assets and doesn’t reflect the ongoing cost of granting credit.

When deciding credit policy, include costs that arise specifically from offering credit and managing it. Costs of credit control cover the expenses of administering the credit system—credit checks, invoicing, chasing overdue payments, debt collection, and related administrative work. These are incremental costs that change with how generous or strict the credit terms are, so they must be considered in the policy decision.

Other items don’t fit this focus because they are not caused by the credit policy itself: interest paid on existing debt is a financing cost tied to existing borrowings rather than the act of offering credit; marketing expenditure is a broader promotional cost not specific to credit terms; depreciation is a non-cash accounting charge for fixed assets and doesn’t reflect the ongoing cost of granting credit.