BUSINESS ADMINISTRATION
FINANCIAL MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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a reduction in price if payment is made within the specified time period
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a discount offered to critical suppliers
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a discount applied to volume sales
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a discount or the repayment of the firm’s debt
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Detailed explanation-1: -Cash discounts are not reductions in the set sales price of a good or service at the time of the transaction – they are a reduction in the amount to be paid by a credit customer (one that is not paying in cash) if that customer pays their debt within a specified time period.
Detailed explanation-2: -: a discount granted in consideration of immediate payment or payment within a prescribed time.
Detailed explanation-3: -In accounting, there are two different ways that cash discounts can be recorded in the books: the net method and the gross method. The net method treats sales revenue as the net amount after the given discount, and any discounts that the buyer doesn’t take are recorded as interest revenue.
Detailed explanation-4: -To calculate the cash discount, the formula uses the price and the rate. The formula reads: Cash Discount = Purchase Price x Discount Rate. For example, if the price of the product is $200 and the discount rate is 10%, then the cash discount would equal $20, which means the consumer saves $20.
Detailed explanation-5: -This means that 2% can be deducted by the customer if they make payment within 10 days; otherwise, the full amount is due in 30 days. Under the reward interpretation, the discount taken by the customer is treated as a cost of obtaining the cash earlier.