When a firm decreases or cancels a cash discount, sales are expected to ________, the investment in accounts receivable is expected to ________, the bad debt expense is expected to ________, and the profit per unit is expected to ________.
A) decrease; increase; increase; increase
B) decrease; decrease; increase; increase
C) increase; increase; decrease; decrease
D) increase; decrease; decrease; decrease

Question

Quizplus · Accepted Answer

When a firm decreases or cancels a cash discount, sales are expected to decrease because the incentive for early payment is reduced. The investment in accounts receivable is expected to increase as more customers take longer to pay. The bad debt expense is expected to increase because with longer payment terms, there's a higher risk of defaults. The profit per unit is expected to increase because the firm is no longer offering a discount, thus maintaining a higher margin on sales.

When a Firm Decreases or Cancels a Cash Discount, Sales