CREDIT BUSINESS ASSOCIATE (CBA) PRACTICE EXAM
NEWEST 2026-2027 UPDATE 100 QUESTIONS & 100%
CORRECT ANSWERS WITH RATIONALES GRADED A+
(BRAND NEW!!)
MOST TESTED TOPICS:
Business Credit Principles and Policy
Financial Statement Analysis
Credit Risk Assessment
Legal Aspects of Credit (UCC, Bankruptcy)
Collection Practices and Accounts Receivable Management
Question 1
A company's credit policy primarily serves which purpose?
A) To maximize sales regardless of risk
B) To eliminate all bad debts
C) To balance sales growth with acceptable risk
D) To ensure all customers pay cash
Correct Answer: C
Rationale: An effective credit policy balances revenue generation with risk
control, not eliminating all risk (impossible) nor maximizing sales at any cost.
Question 2
Which of the following is a key component of a written credit policy?
A) Credit application requirements
B) Credit limit approval authority levels
C) Payment terms and discounts
D) All of the above
Correct Answer: D
Rationale: A comprehensive credit policy includes application requirements,
approval hierarchies, payment terms, collection procedures, and risk grading.
1
,Question 3
The "Five C's of Credit" include all of the following EXCEPT:
A) Character
B) Capacity
C) Collateral
D) Convenience
Correct Answer: D
Rationale: The Five C's are Character, Capacity, Capital, Collateral, and Conditions.
Convenience is not a credit factor.
Question 4
Which term describes the practice of offering customers a discount for early
payment?
A) Trade credit
B) Dynamic discounting
C) Factoring
D) Forfaiting
Correct Answer: B
Rationale: Dynamic discounting (or traditional terms like 2/10 net 30) offers
discounts for early payment. Factoring involves selling receivables.
Question 5
A company offers terms of "2/10, net 30". What is the effective annual interest
rate for a customer who forgoes the discount?
A) 2%
B) 12%
C) 24%
D) 36.7%
Correct Answer: D
Rationale: (2% / 98%) × () = 0.02041 × 18.25 = 37.2% approximately. The
exact calculation yields about 36.7-37.2%.
Question 6
Which credit policy component sets the maximum amount of credit extended to a
customer?
2
, A) Credit scoring
B) Credit limit
C) Credit hold
D) Credit review
Correct Answer: B
Rationale: A credit limit is the maximum dollar amount a customer may owe at
any time.
Question 7
What is the primary purpose of a credit application?
A) To legally bind the customer to pay
B) To gather information for credit decisioning
C) To advertise company products
D) To replace a sales contract
Correct Answer: B
Rationale: Credit applications collect essential financial, trade, and legal
information to assess creditworthiness.
Question 8
Trade credit refers to:
A) Bank loans for inventory
B) Credit extended between businesses for goods/services
C) Credit card receivables
D) Government-backed small business loans
Correct Answer: B
Rationale: Trade credit is B2B credit where a supplier allows a buyer to pay later
for goods or services.
Question 9
A "personal guarantee" is most commonly required when:
A) Customer has excellent credit
B) Business is a publicly traded corporation
C) Business is a new or thinly capitalized entity
D) Customer pays cash on delivery
3
NEWEST 2026-2027 UPDATE 100 QUESTIONS & 100%
CORRECT ANSWERS WITH RATIONALES GRADED A+
(BRAND NEW!!)
MOST TESTED TOPICS:
Business Credit Principles and Policy
Financial Statement Analysis
Credit Risk Assessment
Legal Aspects of Credit (UCC, Bankruptcy)
Collection Practices and Accounts Receivable Management
Question 1
A company's credit policy primarily serves which purpose?
A) To maximize sales regardless of risk
B) To eliminate all bad debts
C) To balance sales growth with acceptable risk
D) To ensure all customers pay cash
Correct Answer: C
Rationale: An effective credit policy balances revenue generation with risk
control, not eliminating all risk (impossible) nor maximizing sales at any cost.
Question 2
Which of the following is a key component of a written credit policy?
A) Credit application requirements
B) Credit limit approval authority levels
C) Payment terms and discounts
D) All of the above
Correct Answer: D
Rationale: A comprehensive credit policy includes application requirements,
approval hierarchies, payment terms, collection procedures, and risk grading.
1
,Question 3
The "Five C's of Credit" include all of the following EXCEPT:
A) Character
B) Capacity
C) Collateral
D) Convenience
Correct Answer: D
Rationale: The Five C's are Character, Capacity, Capital, Collateral, and Conditions.
Convenience is not a credit factor.
Question 4
Which term describes the practice of offering customers a discount for early
payment?
A) Trade credit
B) Dynamic discounting
C) Factoring
D) Forfaiting
Correct Answer: B
Rationale: Dynamic discounting (or traditional terms like 2/10 net 30) offers
discounts for early payment. Factoring involves selling receivables.
Question 5
A company offers terms of "2/10, net 30". What is the effective annual interest
rate for a customer who forgoes the discount?
A) 2%
B) 12%
C) 24%
D) 36.7%
Correct Answer: D
Rationale: (2% / 98%) × () = 0.02041 × 18.25 = 37.2% approximately. The
exact calculation yields about 36.7-37.2%.
Question 6
Which credit policy component sets the maximum amount of credit extended to a
customer?
2
, A) Credit scoring
B) Credit limit
C) Credit hold
D) Credit review
Correct Answer: B
Rationale: A credit limit is the maximum dollar amount a customer may owe at
any time.
Question 7
What is the primary purpose of a credit application?
A) To legally bind the customer to pay
B) To gather information for credit decisioning
C) To advertise company products
D) To replace a sales contract
Correct Answer: B
Rationale: Credit applications collect essential financial, trade, and legal
information to assess creditworthiness.
Question 8
Trade credit refers to:
A) Bank loans for inventory
B) Credit extended between businesses for goods/services
C) Credit card receivables
D) Government-backed small business loans
Correct Answer: B
Rationale: Trade credit is B2B credit where a supplier allows a buyer to pay later
for goods or services.
Question 9
A "personal guarantee" is most commonly required when:
A) Customer has excellent credit
B) Business is a publicly traded corporation
C) Business is a new or thinly capitalized entity
D) Customer pays cash on delivery
3
