Which of the following groups are least likely to be creditors of a company?
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A. B. C. D.D
The customers that buy on credit owe the company; they are not creditors of the company unless the company owes them.
Among the given options, the group that is least likely to be creditors of a company is option D: customers. Let's discuss each group and their relationship with the company to understand why customers are least likely to be creditors.
A. Suppliers: Suppliers are entities or individuals who provide goods or services to a company. In many cases, companies purchase goods or services on credit from their suppliers, which means they receive the goods or services upfront and pay for them at a later date. This creates a creditor relationship between the company and its suppliers. The company owes money to its suppliers and is considered a debtor. Therefore, suppliers are likely to be creditors of the company.
B. Investors: Investors refer to individuals or institutions that invest capital in a company with the expectation of earning a return on their investment. There are different types of investors, such as equity investors (shareholders) and debt investors (bondholders or lenders). Debt investors provide funds to the company in the form of loans or bonds, which need to be repaid with interest. This establishes a creditor relationship between the company and its debt investors. Hence, investors, specifically debt investors, are likely to be creditors of the company.
C. Banks: Banks play a crucial role in providing financial services to companies. They offer various forms of credit, such as loans, lines of credit, and overdraft facilities, to support the company's working capital needs or specific projects. When a company borrows funds from a bank, it becomes a debtor and the bank becomes a creditor. Therefore, banks are highly likely to be creditors of a company.
D. Customers: Customers are individuals or entities that purchase goods or services from a company. Unlike suppliers, investors, or banks, customers are not typically creditors of a company. When customers make purchases, they provide payment to the company for the goods or services received. The payment is not considered credit since it happens at the time of the transaction. Instead, customers are considered the source of revenue for the company. The company provides goods or services to customers in exchange for payment, and customers are not owed any money by the company. Hence, customers are least likely to be creditors of a company.
In summary, while suppliers, investors (specifically debt investors), and banks are likely to be creditors of a company, customers are not typically creditors since they provide payment for goods or services at the time of the transaction.