Following information is related to Trade discount excepta)Offered at an agreed percentageb)Not recorded in the booksc)encourage the debtors to pay the dues promptlyd)Persuade the buyer to buy more goodsCorrect answer is option 'C'. Can you explain this answer?

Question

Answer

A trade discount is a reduction to the published price of a product. For example, a high-volume wholesaler might be entitled to a 40% trade discount, while a medium-volume wholesaler is given a 30% trade discount. ... Trade discounts are different from early-payment discounts. A trade discount is the amount by which a manufacturer reduces the retail price of a product when it sells to a reseller, rather than to the end customer. The reseller then charges the full retail price to its customers in order to earn a profit on the difference between the amount by which the manufacturer sold the product to it and the price at which it then sells the product to the final customer. The reseller does not necessarily resell at the suggested retail price; selling at a discount is a common practice, if the reseller wishes to gain market share or clear out excess inventory.

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Trade discount is offered by the seller to the debtors to make a prompt payment before the due date.... I. e it is an encouragement to debtors to pay the dues promptly

Answer

Because option c belongs to the quality of cash discount

Answer

Trade discount
Trade discount is a reduction in the list price of a product or service that is offered by the seller to the buyer. It is usually provided as an incentive to the buyer to encourage them to purchase more goods or services from the seller. However, there are certain characteristics of trade discount that differentiate it from other types of discounts.

Characteristics of trade discount
1. Offered at an agreed percentage: Trade discount is offered based on an agreed percentage between the seller and the buyer. This percentage is determined during the negotiation process and is often based on factors such as the volume of purchase, customer loyalty, or other specific terms agreed upon by both parties.

2. Not recorded in the books: Unlike other types of discounts, trade discount is not recorded in the books of accounts. It is typically deducted from the list price at the time of sale and is not reflected in the financial statements. It is important to note that trade discount is not considered a loss or expense for the seller, but rather a reduction in the selling price.

3. Persuade the buyer to buy more goods: One of the main objectives of trade discount is to persuade the buyer to buy more goods or services from the seller. By offering a lower price, the seller aims to increase the quantity of goods sold and thereby increase their sales volume. This helps the seller to achieve economies of scale and improve their overall profitability.

Exception: Encouraging prompt payment
The statement mentioned in option 'C' is incorrect. Trade discount is not specifically designed to encourage debtors to pay their dues promptly. While prompt payment may be a desirable outcome for the seller, the primary purpose of trade discount is to promote sales volume and increase customer loyalty. Trade discount is usually offered to all customers, regardless of their payment terms or history.

In contrast, prompt payment discounts, also known as cash discounts, are specifically designed to encourage debtors to pay their dues promptly. These discounts are typically offered to customers who make payment within a specified time period, such as 10 days or 30 days. The purpose of prompt payment discounts is to incentivize customers to pay early and improve the seller's cash flow.

To summarize, trade discount is a reduction in the list price of a product or service that is offered by the seller to the buyer. It is not recorded in the books, is based on an agreed percentage, and aims to persuade the buyer to purchase more goods. However, it is not specifically designed to encourage prompt payment.

Answer

Of course options c but I can't explain

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