Bad Debts associated with extension of credit to customers represented which category of cost?

The correct answer is - Default costs

Key Points

• Default costs
  • These are costs incurred when customers fail to repay their credit obligations.
  • These costs may include the direct financial loss from the unpaid debt, as well as administrative costs related to managing the default.
  • Bad debts are a direct result of customer defaults, making them part of default costs.

Additional Information

• Collection costs
  • Costs associated with efforts to collect overdue payments from customers.
  • These can include costs for collection agencies, legal fees, and in-house collection efforts.
• Capital costs
  • Refers to the cost of funds used for financing a business.
  • This is not directly related to bad debts but rather the cost of raising capital.
• Delinquency costs
  • Costs incurred due to late payments by customers.
  • These may include late fees and the cost of additional collection efforts.