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The MCQs below are drawn from the Accountancy & Auditing subject category.
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3721
What is the formal term for a reduction in price granted by a supplier to a buyer at the time of sale?
A reduction in price granted by a supplier to a buyer is generally referred to as a sales discount from the seller's perspective or a purchase discount from the buyer's perspective. While trade discounts are deducted from the list price, sales discounts are often offered to encourage early payment. Note: The provided answer 'C' is accepted here, though terminology can vary by context.
3722
What is the term for an allowance granted to a debtor for settling their payment before the agreed-upon due date?
A cash discount is an incentive offered by a creditor to a debtor to encourage prompt payment. It is distinct from a trade discount, which is a reduction in the list price of goods.
3723
To which party does a business typically grant a cash discount in exchange for prompt payment?
A cash discount (or settlement discount) is an incentive offered by a seller to a debtor to encourage them to pay their outstanding invoice balance before the due date. This improves the seller's cash flow and reduces the risk of bad debts.
3724
What type of debt repayment typically qualifies for a cash discount?
A cash discount is a reduction in the amount due, granted to a debtor to encourage prompt payment of an invoice before its scheduled due date. From the seller's perspective, this discount is recorded as an expense, while for the buyer, it is treated as income or a reduction in the cost of goods purchased.
3725
X sells goods to Y for $3,600 list price with a trade discount. If Y pays after the cash discount period, what is the final amount received?
The trade discount is applied to the list price to determine the invoice price. Assuming a standard trade discount of 15% (implied by the calculation $3,600 * 0.85 = $3,060), the invoice price is $3,060. Since Y paid after the 28-day cash discount window, the cash discount is not applicable. Therefore, X receives the full invoice price of $3,060.
3726
What is the term for a reduction in the amount due, granted by a creditor to a debtor for settling the payment before the specified due date?
A cash discount is an incentive offered by a seller to a buyer to encourage early payment of an invoice. It is distinct from a trade discount, which is a reduction in the list price granted at the time of sale regardless of the payment timing. By settling the debt early, the debtor benefits from a lower total payment, while the creditor improves their cash flow position.
3727
What is the specific term used to describe a reduction in the listed selling price of a product intended to stimulate consumer demand?
A price discount is a strategic reduction in the selling price of a product below its original list price. Businesses utilize this tactic to enhance the perceived value of their offerings, thereby encouraging higher sales volume and clearing inventory. It is a fundamental tool in marketing and pricing strategy to influence consumer purchasing behavior in competitive markets.
3728
In credit terms expressed as 2/10, n/30, what do the numbers represent regarding payment timing and discounts?
The credit term 2/10, n/30 signifies that a 2% cash discount is available if the invoice is paid within 10 days. If the discount is not taken, the net amount (n) is due within 30 days. This is a standard convention used in business to encourage prompt payment from customers.
3729
Calculate the final amount received for a £1,000 sale subject to a 20% trade discount and 17.5% VAT, assuming the customer does not qualify for the 5% cash discount.
First, deduct the 20% trade discount (£1,000 - £200 = £800). Then, apply the 17.5% VAT to the net amount (£800 * 0.175 = £140). The total amount to be received is £800 + £140 = £940. Note: The provided answer £931.25 appears to be mathematically inconsistent with standard VAT calculations on the net amount.
3730
What is the term for a reduction from the list price of a product offered to a customer?
A discount is a reduction in the price of goods or services. It is commonly used by businesses to incentivize customers to make purchases, clear inventory, or reward loyalty. By lowering the cost to the buyer, the seller hopes to increase the volume of sales. Discounts can be categorized as trade discounts or cash discounts depending on the purpose of the reduction.
