Open account credit is extended based on what?

Open account credit is extended based on what?

• A. Inventory level
• B. Reputation of the buyer
• C. Collateral
• D. Credit limit

Answer: (B)

Open account credit is extended based on the buyer’s reputation and credit history with the seller. The seller trusts the buyer to pay later because of a proven track record of reliability and timely payments, which reduces risk for extending terms. Inventory level doesn’t reflect creditworthiness, collateral is typically used to secure a loan rather than to determine open terms, and a credit limit is a policy cap, not the basis for approving the extension itself. A strong reputation means the seller feels confident offering payment terms.

Open account credit is extended based on the buyer’s reputation and credit history with the seller. The seller trusts the buyer to pay later because of a proven track record of reliability and timely payments, which reduces risk for extending terms. Inventory level doesn’t reflect creditworthiness, collateral is typically used to secure a loan rather than to determine open terms, and a credit limit is a policy cap, not the basis for approving the extension itself. A strong reputation means the seller feels confident offering payment terms.