Question

Justify the following statement.

Trade credit is not cash loan.

Answer 1

Justification:

1. Trade Credit refers to the facilities or credit extended by the manufacturer, wholesalers, and suppliers of goods to the purchaser but receives payment after the credit period from the date of purchase.
2. Manufacturer, wholesalers, and suppliers of goods or materials are called "Trade Creditors'
3. 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.
4. This practice is done by a business concern with an intention to increase its sales or turnover, generate additional business and maintain a good relationship with the purchasers.
   Thus, it is rightly justified that, trade credit is not a cash loan.