The correct answer is: D. All of the above
A cash discount is a reduction in the price of a product or service that is offered to customers who pay their bill within a certain time period. This can be a way to encourage customers to pay their bills early, which can improve cash flow for the business.
If a cash discount is offered, it is likely that sales will increase. This is because customers will be more likely to buy products or services if they know that they can get a discount by paying their bill early.
However, it is also likely that debtors will increase. This is because customers who take advantage of a cash discount will be taking longer to pay their bills. This can lead to a longer debt collection period, as the business will have to wait longer to receive payment.
Overall, offering a cash discount can have both positive and negative effects on a business. The decision of whether or not to offer a cash discount should be made on a case-by-case basis, taking into account the specific circumstances of the business.
Here are some additional details about each option:
- Sales: Sales are the total amount of revenue that a business generates from selling its products or services. When a cash discount is offered, sales are likely to increase because customers will be more likely to buy products or services if they know that they can get a discount by paying their bill early.
- Debtors: Debtors are customers who owe money to a business. When a cash discount is offered, debtors are likely to increase because customers who take advantage of a cash discount will be taking longer to pay their bills. This can lead to a longer debt collection period, as the business will have to wait longer to receive payment.
- Debt collection period: The debt collection period is the length of time it takes a business to collect payment from its customers. When a cash discount is offered, the debt collection period is likely to increase because customers who take advantage of a cash discount will be taking longer to pay their bills.