Question

Review the following statements and select the one that best describes a discount period?

A. The discount period is the time period in which a discount may be taken by the buyer.

B.The discount period is another name for the credit terms of a sale.

C. The discount period is the time between a sale and when payment is due from the buyer.

Answer 1

Answer: Option-(A): The discount period is the time period in which a discount may be taken by the buyer. Reason: Option-(A) is the correct answer because customers are group of people who avail firm's services or buys goods from firm. Some of them may pay immediately and some may agree to pay in later date. When customers pay immediately, it is considered as cash sales; If customers agree to pay later, it is considered as credit sales or sales on account. For efficient cash management, firm may offer discount to credit customers if they pay dues within particular period before expiry of actual credit period given. So, customers who have cash may utilize the cash discount offer and settle the dues within discount period offerred by the firm. If customers do not have cash to pay dues within discount period, they may take time and settle dues on/before the last day of discount period offerred to them by the firm. Option-(B) is incorrect because credit terms of a sale describes how many days of credit period is offerred, how much interest will be charged on customers if they fail to pay bill within credit period, how many days of discount period is offered, how much is the cash discount % if bill is paid within discount period, etc. So, credit terms of sale doesn't narrow down its scope to describe discount period only. Option-C) is incorrect because credit period is the time between a sale and when payment is due from the buyer and it is not the discount period.