Three Kinds of Credit Accounts

by JeanetteMarceau
Published on: May 10, 2011
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Describe three kinds of credit accounts which a company can use to support its credit sales?

 

The three kinds of credit accounts which a company can use to support its credit sales are revolving agreement, charge agreement, and installment agreement.

 

Revolving Agreement:

In a revolving credit agreement you are charged interest on the amount of the balance that was not paid at the end of the period due.  If you pay for your purchases in full at the end of each period then you will not be charged any interest.  If you make a partial payment then the unpaid balance will be charged interest until paid in full.  If you make no payment then the unpaid balance will accrue interest until paid.

 

Charge Agreement:

In a charge credit agreement you agree to pay in full at the end of the period for all purchases.  Since there are no outstanding balances at end of the period there will be no finance charges.

 

Installment Agreement:

In a installment credit agreement you agree to pay a certain amount equally over a specific time with a fixed amount of interest.  Your periodic payment is applied to the interest accrued and pay down of principle balance until the total balance is zero.

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