Which of the following is true of changes in cash discount period?
A) If a firm increases its cash discount period, the sales are expected to decrease, the bad debts are expected to decrease, and the profit per unit is expected to increase.
B) If a firm decreases its cash discount period, the sales are expected to decrease, the bad debts are expected to decrease, and the profit per unit is expected to increase.
C) If a firm increases its cash discount period, the sales are expected to increase, the bad debts are expected to decrease, and the profit per unit is expected to decrease.
D) If a firm decreases its cash discount period, the sales are expected to decrease, the bad debts are expected to increase, and the profit per unit is expected to decrease.

Question

Quizplus · Accepted Answer

If a firm increases its cash discount period, it provides customers with more time to pay, which could result in increased sales. However, this may also result in a higher likelihood of bad debts as customers may take longer to pay or default altogether. Additionally, the profit per unit may decrease as the firm may offer a higher discount for customers who pay within the new, longer discount period. Conversely, if a firm decreases its cash discount period, customers will have less time to pay and may be more likely to pay on time, resulting in lower bad debts. Additionally, the firm may be able to offer lower discounts for early payment, resulting in a higher profit per unit. However, this shorter discount period may result in decreased sales as customers may not be as incentivized to make early payments.

Which of the Following Is True of Changes in Cash