Sources of Creditor Financing

D

Shareholders, whether they receive dividends or not, are not considered creditors. Creditors do have a stake in the success of a company, but they are not owners of the company.

The correct answer is D. shareholders who receive no dividends.

Creditor financing refers to the funds obtained by a company from external sources, primarily to finance its operations and meet its financial obligations. Creditors are individuals or institutions that lend money to the company, expecting repayment with interest.

Let's analyze each answer choice to understand why they are or are not sources of creditor financing:

A. Banks: Banks are a common source of creditor financing. They provide loans and lines of credit to businesses, allowing them to borrow funds for various purposes. The borrowed money must be repaid to the bank, typically with interest, making banks a significant source of creditor financing.

B. Accounts payable: Accounts payable refers to the short-term debts owed by a company to its suppliers for goods or services received on credit. While accounts payable represent a liability for the company, they do not qualify as a source of creditor financing. Instead, they are considered a form of trade credit provided by suppliers to the company.

C. Employees who receive pay in arrears: Paying employees in arrears means that the company compensates its employees after they have provided their services, rather than in advance. While this payment arrangement affects the company's cash flow, it does not involve external sources of financing. Therefore, employees receiving pay in arrears are not considered a source of creditor financing.

D. Shareholders who receive no dividends: Shareholders are the owners of a company and typically provide equity financing by investing capital in the business. Dividends, on the other hand, represent a portion of a company's profits distributed to shareholders. The absence of dividends does not imply that shareholders are providing creditor financing. Shareholders' investments in the company are classified as equity, not debt, and do not fall under the category of creditor financing.

To summarize, while banks and accounts payable are sources of creditor financing, employees who receive pay in arrears and shareholders who receive no dividends are not considered sources of creditor financing.