Cash discounts are offered for which purpose?

• A. Provided for bulk purchases.
• B. Discounts for early payment of invoices.
• C. Discounts for returning damaged goods.
• D. Offered for the prompt payment of invoices.

Answer: (D)

Cash discounts are incentives given by sellers to get customers to pay invoices quickly. By offering a discount for paying sooner, the seller improves cash flow and reduces the time accounts receivable remain outstanding. The standard phrasing describes it as a discount for the prompt payment of invoices, which clearly communicates the goal of encouraging timely settlement.

For example, terms like 2/10, net 30 mean the buyer can take a 2% discount if payment is made within 10 days; otherwise the full amount is due in 30 days. This concept isn’t about discounts for bulk purchases or for returning damaged goods, which are separate types of adjustments.