Multiple Choice
Wages earned over the course of a year are a worker’s:
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4. Merchandising Operations
Net Sales
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Which of the following best describes a 'trade discount' in the context of net sales?
A
A percentage discount extended to vendors to encourage bulk purchases.
B
A fee charged to vendors for late delivery of goods.
C
A discount given to customers for early payment of invoices.
D
A reduction in sales price due to defective merchandise.
Verified step by step guidance1
Understand the concept of 'trade discount': A trade discount is a percentage reduction in the listed price of goods or services offered by a seller to buyers, typically to encourage bulk purchases or foster long-term business relationships.
Analyze the options provided in the question: Each option describes a different type of financial adjustment or discount, so it is important to identify which one aligns with the definition of a trade discount.
Option A: 'A percentage discount extended to vendors to encourage bulk purchases' matches the definition of a trade discount, as it is specifically aimed at incentivizing bulk purchases.
Option B: 'A fee charged to vendors for late delivery of goods' does not describe a discount but rather a penalty, which is unrelated to trade discounts.
Option C and D: 'A discount given to customers for early payment of invoices' and 'A reduction in sales price due to defective merchandise' describe other types of discounts (cash discount and allowance for defective goods, respectively) and are not trade discounts.
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