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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Sales Discount Policies

Consider three businesses, all of which offer price reductions to their customers. The first is an independently owned gas station located at a busy intersection in Cincinnati, Ohio, that offers a 3% discount for cash purchases of gasoline. The second is a large home improvement store located near an interstate exit in suburban Cleveland that offers building contractors terms of 3/10, n/45. And third is a clothing manufacturer and catalog retailer located in Columbus. Several times during each year, a catalog is distributed in which men’s dress shirts are heavily discounted if purchased in lots of four or more.

Required:

How does accounting information assist each business in achieving its discount policy objectives?

To determine

Sales Discount:

Sales discount is a way by which the seller can get the cash payments easily and before time. This is the discount given on the selling price to the customer buying the product which makes them satisfied and for seller it helps in getting the payments fast.

The term 3/10,n/45 means that if a customer is paying in 10 days then the payment will be after a discount of 3% on the total value but if the customer is paying in 45 days then the payment will be made in full which means no discount.

The sales discount in the name of quantity discount is the discount given on the buying of bulk quantity of any goods.

The assistance of accounting information for each business in achieving its discount policy objectives.

Explanation

In the given case, it is given that there are three businesses i.e. a gas station selling gasoline, a large home improvement store, and clothing manufacturer. All these offers sales discount policies as per their convenience. The first one who runs a gas station offers 3% discount for cash purchases. The second one who runs home improvement store is offering the discount in terms of 3/10,n/45. The third one who is a cloth manufacturer offers discount in a way that a heavy discount will be provided on the purchases of cloth in lots of four or more

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