What is the primary purpose of a cash discount?
A)Customer compensation for an out-of-stock item
B)Customer compensation for faulty goods or services
C)Means of offsetting the interest charges on an account receivable
D)Inducement to pay promptly
E)Incentive to purchase a specialty item

Question

Quizplus · Accepted Answer

The primary purpose of a cash discount is to incentivize customers to pay promptly. This helps the seller to improve their cash flow and reduce the risk of bad debts.

Other options are not accurate: 
A) Customer compensation for an out-of-stock item would be a discount for the next purchase or a refund. 
B) Customer compensation for faulty goods or services would be a refund or replacement of the faulty goods or services. 
C) Means of offsetting the interest charges on an account receivable is a late payment fee charged to customers. 
E) Incentive to purchase a specialty item would be a promotional discount.

What Is the Primary Purpose of a Cash Discount