Consulting Case Interview Practice Questions

Answer: d - Prepayment carries the least risk. However, it must be booked as deferred revenue as it is unearned until the goods are shipped. This goes on the books as a liability, while cash is put on the other side of the balance sheet.

Key Takeaway: Remember that future cash flows must be discounted for time. Upfront payments are a treasure, as long as you get the accounting right. Changing billing terms is a way to squeeze out additional margins.