A discount that is allowed to encourage a debtor to pay off his debt within a period is the

Assessment: JAMB UTME - Principles of Accounts - 2016 Subject: Financial Accounting

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A discount that is allowed to encourage a debtor to pay off his debt within a period is the
Answer Details
The discount that is given to a debtor to encourage them to pay off their debt within a specified period is called a cash discount. For example, a seller may offer a 2% cash discount to a buyer if they pay their invoice within 10 days instead of the usual 30-day payment terms. This means that if the buyer pays within the 10-day period, they will receive a 2% discount on the total amount due. The purpose of a cash discount is to incentivize prompt payment and to improve cash flow for the seller. It benefits the buyer as well because they can save money by paying early. However, if the buyer does not pay within the discount period, they will lose the opportunity to receive the discount and will have to pay the full amount due.
Read lesson note on Nature And Significance Of Accounting (JAMB)
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