Multiple Choice
Which form of payment allows customers to draw money directly from their checking account at the point of sale?
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1. Introduction to Accounting
Types of Accounting
Multiple Choice
Which type of discount is applied only if the buyer pays the invoice within a certain number of days?
A
Trade discount
B
Quantity discount
C
Seasonal discount
D
Cash discount
Verified step by step guidance1
Understand the concept of a cash discount: A cash discount is a reduction in the invoice price offered by the seller to the buyer as an incentive for early payment within a specified period.
Compare the cash discount with other types of discounts: Trade discounts are reductions in price based on the buyer's status or volume of purchase, quantity discounts are reductions for purchasing in bulk, and seasonal discounts are reductions tied to specific times of the year.
Recognize the key feature of a cash discount: It is conditional upon the buyer paying the invoice within the agreed-upon time frame, typically stated in the payment terms (e.g., '2/10, net 30' means a 2% discount if paid within 10 days).
Identify the purpose of a cash discount: It encourages prompt payment, improving the seller's cash flow and reducing the risk of bad debts.
Apply this understanding to the problem: The correct answer is 'Cash discount' because it specifically relates to early payment within a certain number of days, unlike the other types of discounts listed.
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